Friday, February 27, 2009

Who Is John Galt? Atlas Shrugged 

A long time ago, I finally got through Atlas Shrugged, a masterpiece of writing by Ayn Rand. Basic story line: How America fell prey to the guilt and fear mongers, instituted government control under the guise of "social justice" and let the government take over everything. The book, as I recall, is about 1000 pages long. I had experienced a few false starts but I clearly remember getting past page 300 in my parents' kitchen, and did not put the book down until I finished it.

Turns out sales are soaring. 50+ years later, 200,000 copies were sold in 2008. Sales for the seven weeks of 2009 are up 300%. I'm guessing this increase will continue. If you don't have your copy, get it now.

Hat tip: The Jawa Report Best line:"if you don't think you're ready to dive into the world of Atlas Shrugged (whose portrayal of politicians and their various crimes committed in the name of "social concern" unfortunately reads more like nonfiction), it's time to stop putting it off."

If you visit this site, you can learn more about Ayn Rand and the center she founded. She was born in Russia, lived through the Bolshevik Revolution which she denounced. She watched the deterioration of freedom under the Communists, the stifling of creativity, the takeover of the university by Communist thugs. It was time for a creative writer to leave. At age 20 she managed to get a visa to visit relatives in the US with no intention of returning to Russia. Her masterpiece, Atlas Shrugged , published in 1957, is timeless since it addresses totalitarians of all stripes. Wonder why people are buying it today????????

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Can the GDP report be good news? 

The news this morning of a downward revision in GDP has been accepted calmly in the markets (remarkable given it's also digesting the government's conversion of its preferred shares from TARP into common stock ownership of Citi. �I'll wait to read more about that until the weekend.) �I think the reason for this is that the changes include some positive developments.

The Wall Street Journal has provided some balance to the report on a downward revision to inventories:

The inventory revision in Friday's report was good and bad. Bad, because the $19.9 billion drop meant inventories added a mere 0.16 of a percentage point to GDP in the fourth quarter, instead of adding 1.32 percentage points as reported originally. But the drop also suggests there is less of an inventory overhang, a bit of good news. Still, inventory-to-sales ratios have gone up, an unwelcome sign. Excess inventory will have to be worked off, and that signals production cuts, which, in turn, could mean layoffs and further impair the economy. Experts see a large drawdown of stockpiles during the first half of 2009 and expect a big drop in GDP during the current, first quarter.
January data on industrial production confirms that.

But the size of the drop is not nearly as large as we imagine from the headline. �We knew that real final sales of domestic product -- meaning you pull out the inventory changes -- fell from 5.1% in the advance report on January 30 to 6.4% in today's. �So that's a good portion of the revision from 3.8% to 6.2%. �Another half of a percent was from a downward revision to consumption, along with an increase in the savings rate from 2.9% to 3.2% (an extra $33 billion.) �The American consumer will only begin spending again when it feels its net worth is being rebuilt, and its rational reaction to this recession has been organic rebuilding via savings.

There are, to oversimplify, a set of adjustments that have to happen to balance sheets and to inventories, and if you have no choice but to do them better to get them over with. �The revisions are signs that it's happened quicker than previously thought. �I think that is good rather than bad news.


Growth in the supply of "witnesses" at DFL "listening sessions" 

UPDATE (3/1): Please note: this graph doesn't show what I thought it did. Please see my erratum.

Res ipsa loquitur. �Source.

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From the Winter Institute 

I'm sitting at this moment watching the second of two presentations on China-America relations. �The Economic Outlook last night was great fun; while none of our out-of-town speakers were there, we had over 250 in the audience. �While many of my former students were stuck in the Twin Cities, some closer alums made it; we also have a large number of economics students from UM-Duluth here for the conference.� My presentation from last night is here, as promised to you yesterday.

The view from this conference is that China is needed to help the US and world economy come out of recession (I've mentioned this fellow's comment from a couple weeks ago) but Wing Thye Woo (whose speech is going on while I type this) is concerned that a trade war is about to break out that will cause disruption of both goods and credit flows. �The EU is already threatening China. �

Reading tonight: �10 Reasons Why China Matters to You

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Message from Representative Paul Kohls 

Yesterday, I received the following update from Representative Paul Kohls' office in St. Paul. He is one of the Republicans working against the Democrats who seem to think taking our money and leveraging our kids' for posterity is ok. It's not. He proposed a spending freeze that would limit MN spending to the amount of money taken collected. (Gee, what a novel concept!)

Not only have Democrats refused to use this sane, responsible approach but they, along with their 'big brothers' in Washington DC have refused to even let any debate occur on the floor of the legislature in St. Paul. I've lifted a few quotes from Rep. Kohls' email and cross-referenced his website here.
"On Monday, February 23, on the House Floor I tried to offer a resolution
that would have capped the expenditures of our state to the amount it
takes in.......
"When it came time for this resolution to be reported to the House for
its consideration the Democrats abruptly ended session. They did not
even let a discussion on this topic come to the House Floor......
"Our country, our state, and our legislature have a long standing
precedent of allowing all voices to be heard......
"That is why I will push to get back to Economics 101: Don�t spend more than you earn."

A government that claims to solve all problems, only creates more problems and freedom can die in the process.

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Thursday, February 26, 2009

Putting the Winter in Winter Institute 

Our storm today has led to cancellations of some guests for the Economic Outlook tonight, at 5pm at the Kelly Inn. Drs. Laufenberg, Hine and Stinson are unable to get here. My co-author Rich MacDonald will be joining me, however, and we'll put on the Outlook with an all-local panel. Audience participation is appreciated, so if you're in the area in the next 90 minutes, please stop in!

If there's a podcast, I'll let you know. My slides will be posted on this page later tonight, though as we've been adjusting the program during the day my slides have changed dramatically and I'm not sure what version I converted to pdf any more. Oy!

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Advice for young professors of public policy 

The conclusion first: When you speak before a legislative body, don't be cute with your presentation.

Yesterday a young assistant professor of mechanical engineering at the University of Minnesota goes before a state senate committee meeting to argue for a bill that, inter alia, would set goals for the state to lower greenhouse gases by "reduc[ing] the number and length of vehicle trips" and by changing "development patterns". (Among other things, the bill proposes to have a 15% reduction in the number of vehicle miles traveled in Minnesota by 2025, and directs Met Council to come up with a plan to reduce driving in the Twin Cities to 1990 levels. Not a good bill if you favor commerce and markets, but that's another point.)

The professor favors this bill, and is brought in (I assume by its supporters) to testify. The StarTribune describes what happened when he spoke:
Dr. Julian Marshall of the University of Minnesota displayed a digital slide containing two versions of the historic ad.

The original ad is an illustration of a man driving a convertible and bears the slogan "When you ride ALONE, you ride with Hitler! Join a car-sharing club TODAY!" -- the idea being that a failure to conserve resources was aiding the German dictator, who was shown riding in the passenger seat.

The parody replaced Hitler with Osama bin Laden, a reference to oil-producing countries with ties to terrorism. It came from the cover of a 2002 book by the comedian Bill Maher, which was titled, "When You Ride Alone, You Ride with bin Laden: What the Government Should Be Telling Us to Help Fight the War on Terrorism."

"It's no secret that money spent on gasoline goes to places that are not very happy with us," Marshall said. "The issues we're talking about are all interconnected -- climate change, transportation, energy, geopolitics, climate security, energy security."
The STrib link contains the posters. You can also watch his introduction, and the reaction of Senators Dick Day and Juliann Ortman, here:
It's a classic rookie mistake. That slide is a slide that you'd certainly use in a classroom: It's provocative; using Bill Maher makes you seem cool to students; it challenges those who disagree with you to provoke a discussion. In a classroom, those are fine goals (assuming you use the provocation of the students to get them to engage your subject matter rather than as an opportunity to disrespect them. That's been known to happen, but there's no evidence that's an issue with this young man.) But a legislative hearing is not a classroom. I've done a couple of those, and you have to be very sensitive to not give the other side of your issue an opening. The young professor risked being stopped before he could get past the first slide (the chair of the committee has to permit him to continue, as you see at the end of the video.)

If you are from a school of public policy, or work generally in public policy, you should know that, or get advice from a senior faculty member who's learned it. But again, this young fellow is in a department of mechanical engineering. Not exactly a breeding ground for public policy wonks. Who put this fellow on the list to provide testimony? Did he? Or did one of the bill's authors? If the latter, it's their mistake for putting him in harm's way.

There's a time and a place for cute, a time and place for provocation. But that place is not a Senate hearing. Hope he learns his lesson.

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While I work on tonight's talk 

...I find this out this morning. Is this a budget or a political document? When your first chapter is titled "INHERITING A LEGACY OF MISPLACED PRIORITIES", I think the answer is quite clear.

Wednesday, February 25, 2009

Misery Tour - Latest Stop 

Tonight, the DFL "listening" aka "misery" tour made its stop in Burnsville. There were close to 300 people there, 130 of whom had signed up to speak.

Representative Paul Thissen moderated the session very well. He emphasized proper behavior, no booing, and no other indications of agreement or disagreement. The legislators introduced themselves and then an overview of the budget was given. Speakers were limited to 90 seconds and all were pretty much held to the time limit.

In the two hours allotted, approximately 80 spoke (a number of the original 130 were no-shows). The breakdown closely resembled this: 40-50 "don't cut my program, don't cut human services (over 30% of the General Fund expenditures), etc." but none offered any way to save money. The other 20 or so were from the private sector. They made some very poignant observations, including:
- The private sector creates the funds for all the programs, therefore, support business
- People can move out of the state
- Businesses are laying off people and cutting pay - the state employees can experience the same
- Families are cutting back, so can the government
- The recession of 1920-21 lasted less than a year b/c the government did nothing; the recession of the 1930's lasted a decade b/c the government "created" jobs, raised taxes, and tried to control far too much;
- State spending is increasing simply too fast
- Many state programs have zero eligibility requirements, thereby resulting in people using them who should be paying for them
- The rate of expenditures will be passed on to our kids - they are the people who will feel the real pain.
- Support the Racino (casinos at racetracks)
In summary, it appeared the legislators were not ready for the number who spoke in favor of "cutting spending." The officials were polite but, unfortunately, I'm not sure they understand.

A government safety net is one thing, a sticky web of entrapment is something else. Unsustainable government expenditures sap life and liberty from humans. Nothing good happens when people are forced to become wards of the state and others are forced to become servants of the state. Cut the spending, NOW.

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The curse of productivity 

Chad posts on manufacturing:

No one will deny that the transformation of manufacturing in American has been and continues to be painful. We do need to do a better job of recognizing and managing the changing world of manufacturing to ameliorate that pain.�

But when people start talking about how we need the government to "fix it" or "protect it," you have to ask yourself whether the cure will be worse than the disease.�

My father turned the key to lock the plastics plant he worked at for more than 25 years before it was turned over to a bank back in the 1980s. I keep pictures of the old Amoskeag Mills and their tenement blocks where workers had lived in the early 20th Century. My dad's plant, a mile further south down the Merrimack, lasted a couple decades more than the plant that founded my hometown.

But while the job lost is easy to see, what happens later is harder. �The graph Chad shows notes that the same share of our GDP is in manufacturing as was 50 years ago, but the number of workers in the field is barely a third. �But wages of manufacturing workers have, as economic theory would predict,�

What one wonders, certainly, is what happens to the ones who don't stay in manufacturing? In my father's case, it was to another career. Already in his fifties, working up through another plant was not likely, so he went on to work with waste plastic, regrinding it into useful material for blow molding some products at a fraction of the cost of new plastic. He was, in short, an early recycler. �Who makes that cheaper plastic if he doesn't go to work in a new field, if someone "saves" his job? � In many other cases, though, the person who goes on produces a good we might not otherwise have had. Who among us would think it a curse to have this much productivity? That was, in fact, what all the complaints about "jobless expansion" a few years ago really were. What was the sense, they seemed to say, of having all this extra GDP if nobody is getting a job?

What the graph shows is what Henry Hazlitt many years ago referred to as "the curse of machinery". Nowadays there is so much we owe to machines that even the most foolish among us feels sheepish about criticizing that which brings them so much pleasure. Still, we see calls to stop this. One guy:
The result has been the emergence of what some call a �winner-take-all� economy, in which a rising tide doesn�t necessarily lift all boats. Over the past decade, we�ve seen strong economic growth but anemic job growth; big leaps in productivity but flatlining wages; hefty corporate profits, but a shrinking share of those profits going to workers� (p. 146)
He says that like it's a bad thing. It's not. �And the line about shrinking share of profits? �Not so.


A million points of light, someplace 

I find this video fascinating, compressing a 24-hour day of air travel into one minute. Note how the traffic changes as the sun moves across the globe. Note as well how few planes are noticeable flying over Africa. Indeed, look again at this map from Thomas Barnett's The Pentagon's New Map. (I thought of this while listening to his interview with Hugh tonight on my iPod; the above video was sent to me this morning by a friend.) Air service is another part of the non-integrating gap he defines:

I wonder if Barnett's book has ever made it into an economics of developing countries course? �I just grabbed the new book last week, and will have to get it to the top of the pile.

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Tuesday, February 24, 2009

Posting slow today, but for good reason! 

Meetings all day, and preparing for Winter Institute. Which reminds me, if you haven't thought about coming yet, please consider it. That's me on the program for Thursday night's Economic Outlook, with national forecaster Dan Laufenberg, state economist Tom Stinson, and Minnesota labor market expert Steve Hine. I'll be speaking on the central Minnesota economy.

On Friday, the Winter Institute is on Sino-American relations, with the highlight (at least for me) Wing Thye Woo from UC-Davis. I met Woo in Claremont many years ago when he was writing with Jeff Sachs on Chinese economic development, and his work is quite impressive. Also, my friend Jack Hou is giving the luncheon talk. (I'm going to lecture him on not having a professional webpage.)

More tonight if I get a break from making slides for Thursday!

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Taxes, taxes, taxes 

Our son, a recent college graduate, just completed his first 12 months of full time employment. He was shocked when he calculated the governments' take - 27.9% of his income.

Then, I stopped at my local Starbucks for my favorite treat and spent time with "my" Starbucks server. We've discussed politics and economics when no one is behind me in the drive-thru lane. I told him about my son's reckoning with the tax system. To my surprise, "my" server said the same thing and added, "I don't make what your son makes."

If only more people looked at the totality of the taxes they pay instead of just take-home pay, maybe they would realize the real cost to real people for all these socialist tendencies on the part of Democrat legislatures. Yes, I know Bush did some, but no where near what the DFL is proposing in MN nor what Obama and crew have done in DC.

Our children will pay and pay and pay unless someone has the guts to say, "Stop, enough!"

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Monday, February 23, 2009

And then a miracle happens... 

Reading between the lines, and let's assume the CBO forecast for January 2009 has a pretty good grasp of the effects of this recession on the deficit, pre-inauguration. Here's what the leaked economic plan looks like. Data are for budget deficit, in billions of dollars.

CBO 9/08CBO 1/09Obama 2/09?
Don't know how he added this up to be a spending cut.

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It's good to be the king's castle 

While New York Bleeds, Washington Thrives:
As the nation's most populous metro area feels Wall Street's pain, the fourth-largest�Washington�is barely sensing the recession. In fact, Moody's estimates that metro Washington's economy will actually grow 2.5% from mid-2008 through mid-2010. New York's economy is expected to shrink 4.2%.

It wouldn't be the first time that Washington benefited from a national crisis. Back in 1930 the District of Columbia was a quiet Southern town, scoffed at by New York sophisticates. But as the federal government ramped up to fight first the Great Depression and then World War II, its population grew 65% in two decades, vs. just 14% for New York City.
I wonder how much of that was the 1930s versus 1940s, when the war moved many people into DC to help with mobilization. Census data:

1930 486,869
1940 663,091 36%
1950 802,178 21%

Not as much the war.

(h/t: MR.)


Graph of the day 

A corrected slide for the 21st Century Tax Reform Commission report, as we discussed Saturday with Prof. John Spry on The Final Word. Short interpretation: The corporate income tax in Minnesota is regressive.

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Taxes not included 

At least we're above average: On a measure of "small-business vitality", the Twin Cities comes in at 40th of 100. Raleigh was #1; Detroit was #100. Here's the methodology. Tax burdens are not factored into that measure; it's solely a measure based on employment and small business formation. What policies would make this better?


The problem in a nutshell 

I sent to one of my colleagues a link to Craig Newmark's post asking about the lack of replication studies in economics. From the authors of a new paper on the subject:

�This study arose out of our experiences attempting to replicate published empirical research and our concerns about the way unaudited research is used in public policy formation,� said Ross McKitrick, study co-author and Fraser Institute senior fellow.

�When a piece of academic research takes on a public role, such as becoming the basis for public policy decisions, then practices that obstruct independent replication prevent the proper functioning of the scientific process and can lead to poor public decision making.�

McKitrick, economics professor at the University of Guelph, and co-author Bruce D. McCullough, professor of decision sciences at Drexel University in Philadelphia, summarize replication efforts of more than 1,000 economics articles published since the 1980s. Most authors did not release their data when asked, and of those who did, only a small number of results were reproducible. McKitrick and McCullough also examined cases from a broad range of academic disciplines, including history, forestry, environmental science, health, and finance, in which influential studies were later found to be flawed, but only after lengthy battles to get access to the underlying data and, in some cases, years after policy decisions had been made based on the flawed results.

My colleague has a simple response to why it hasn't happened:
Everyone wants replication but no journal will publish the work and no department will value the work for tenure.
I think that's right, as far as it goes. I haven't read the paper yet, but it sounds like the six examples in Prof. Newmark's list are just the ones we found. How many more?


And the answer is.... 

On Saturday I asked whether Gov. Pawlenty would join Gov. Jindal et al. in refusing any of the stimulus money. Jim Gegharty provides an interview, in which Pawlenty responds:
Minnesota ranks forty-sixth in terms of getting federal spending in relation to the amount of taxes paid � for every dollar we sent in to Washington, we get about 72 cents back. We�re a major payer of the federal government�s tabs, unlike many other states that I won�t mention. I say, when you�re paying to buy the pizza, it�s okay to have a slice. Now, if you were a liberal Democratic governor and you opposed military spending, are you not going to take National Guard funding? If you were a liberal who opposed No Child Left Behind, are you going to take federal funding in education? So I�m wondering why that standard is only being applied now to conservatives.

All the governors are going to take almost all of the money. I�m not aware of any governor turning down a substantial amount.
So let's see:
  1. Others are taking the money too, so why shouldn't I?
  2. Since I have to pay anyway, I might as well get my stuff. (Sounds like the argument for spending on the Twins.)
I hope Littlest learns better than this. We wouldn't accept this logic from our children.

UPDATE: Craig Westover adds to the discussion saying conservative answers for where to cut spending fall short of standing on principle, too.
The way out of the current economic situation is not further sacrifice, but less. A more revealing question than �What government services would you be willing to see curtailed?� is: �What government services have you, or will you, unilaterally give up?� As no individual virtue is found in imposed government largess for the benefit of others, there is no virtue in waiting to accept curtailment of government largess to one�s individual benefit. Perhaps the answer to your question is as simple as �just say no.�

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Friday, February 20, 2009

Chiefs of staff unessential 

From the MN Senate:

The Rules and Administration Committee, chaired by Sen. Lawrence Pogemiller (DFL-Mpls.), met Thurs., Feb. 19, to discuss the Senate budget and to review proposed changes to the Permanent Rules of the Senate and the Joint Rules of the Senate and the House of Representatives.

Pogemiller said that, in light of the severity of the budget shortfall and at the suggestion of several senior members, effective immediately there will be a staff hiring freeze and staff pay freeze for the remainder of 2009. In addition, upon the request of any member of the Senate, the Secretary of the Senate (Administrative) must reduce the salary paid to that member, by the amount requested by the member, for the remainder of the 86th Legislative Session, Pogemiller said.

Pogemiller said the Rules and Administration Committee may grant an exception to the hiring freeze only for an essential employee.

Michele Kelm-Helgen, executive director for the Rules and Administration Committee, briefed members on the steps that have already been taken to reduce the Senate budget. She said the Senate reduced it�s budget by $710,000, or three percent, last year and that December�s unallotment process further reduced the budget by $800,000. She said a total of 24 positions have been either eliminated or unfilled. Pogemiller said the magnitude of the shortfall is such that there will probably need to be further staff reductions, either through attrition or lay-offs.

Sen. David Senjem (R-Rochester) made a motion to change the effective date of the hiring freeze to Wed., Feb. 25. Senjem said the Republican Caucus is in the middle of the process to hire a new chief of staff and the delay would allow the process to be completed. The motion was defeated on a 6-2 roll call vote.

Same old Pogie.

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Fallacy of composition: recession edition 

One of the most common conversations I have when talking to businesspersons off-campus arises from anecdotal evidence of either "the economy is terrible because this firm's in bad shape" or "the recession is overhyped by the media; I know this company that's doing really well." Of course what one has to be aware of is the fallacy of composition taking hold of one's reasoning.

Examples included an email I got yesterday from someone working broadly in the area of transportation. Anonymity was requested, so some of this is a paraphrase.
My firm has about 140,000 employees with revenue between $20-30billion worldwide. Less than half of our sales are in the U.S.; we are very diversified. However, we've cut 5% of worldwide workforce and about 10% more expected. Our corporate finance guys say the recession runs into 2010.

When I see data like this and I see the way that our customers have been scaling back and cancelling projects--some that have been in the works for years--I find it hard to believe that there's any way that we'll see a recovery in 2009. Granted, this is a somewhat narrow perspective, but we do serve a fairly broad spectrum of industries; pulp & paper, chemical, food & beverage, oil & gas, water & waste, mining, pharma, power, etc. and with the exception of water & waste (government $$$) and maybe power, we're seeing cutbacks pretty much everywhere. The only world area where we're still seeing growth is Asia and that's really saving our bacon right now. Which means if Obama is foolish enough to cave in to protectionist pressures, we'd pretty much be screwed.
Now, my optimistic friend, also mailing me this week, telling me that a firm in western Minnesota, in plastics, is running three shifts, seven days a week. It has 200 employees and largely runs small lots. (My dad worked for Foster Grant for many years in blowmolded plastics, and lots of under 100,000 might be too expensive because of set-up costs.) He points to Medtronics, who just reported great earnings, and Best Buy is repositioning and seems in good shape. The media, he says, needs to talk about the good as well as the bad.

Our Quarterly Business Report relies on a measure called a diffusion index, which takes increase/no change/decrease responses to a series of questions we ask and converts it to a number. (Some do increase + 0.5*no change; ours is increase - decrease. I won't bore you with the rationale.) The Federal Reserve, the Bureau of Labor Statistics, and the Institute of Supply Management provide data on the diffusion of production, employment, and composite measures of output across industries. The first point you'll grasp from looking at these data is that at any point in time some industries are going up and some industries are going down, even in the best or worst of times. You can always find a strong company or industry in a deep recession if you look around enough, and you can always find a weak industry in a strong expansion. The question to ask is how many are up? How many are down? When you sum them up, what do you see on balance?

Here's the ISM picture for non-manufacturing firms

And for manufacturing firms
It should be pretty evident from these graphs that on balance the manufacturing sector has been severely hit, as my pessimistic friend believes. He's right that it's very severe from the vantage point of a firm that services the goods-producing sector. But on balance, non-manufacturing businesses have not done nearly so poorly, so my optimistic friend is OK to point to Best Buy. The plastics industry is down to 526,600 jobs in January 2009 from 590,700 in Jan. 2008. (I don't have a detailed sheet to look at employment in medical devices, so I can't say much about Medtronics' industry.)

If you work in the goods-producing sector, or provide service to them, I would be surprised if you DIDN'T think the recession was going to be long and miserable. This recession is much more difficult there than the very mild recessions of 1990 and 2001. But not for everyone, as the plastics firm and Medtronics suggests. If you are in the services sector, it may not feel any different than previous recessions except for what you hear on TV, so you might wonder what the fuss is all about. The answer is, it depends where you stand. They're both right on the particulars, and they both suffer from the fallacy of composition when they extrapolate.


Thursday, February 19, 2009

I don't grade inputs 

The title of this post is my normal response to students who seek higher grades because "I tried really hard on this assignment" or give me a measure of hours worked. If that was the decisionmaking process, we would have you take your homeworks online and have your time studying measured by the computer. (We'd have to figure out that you were actually reading the screens, but it's doable.) Alternatively, you could come to a study center and punch in on a time clock. I would hire a monitor to make sure you aren't slacking, and grades would be assigned based on hours punched in.

This is, I hope you'll agree, absurd.

This article talks about students who nevertheless believe that arguments from inputs should count in what has become the all-too-common grade negotiation. I took two grades, as far as I remember, from college below a B. I worked harder in those two classes than any of the others because I knew I was having trouble. And I did not argue either one; indeed, the D in Fortran programming was probably gentlemanly.

Two quotes stick out:
�I tell my classes that if they just do what they are supposed to do and meet the standard requirements, that they will earn a C,� he said. �That is the default grade. They see the default grade as an A.�
I have tried to overcome this by telling students they start with zero and must reach certain marks to attain grades. (I don't use curves for grading.) Never use -2 or -5 when grading. Give +7 or +2 instead. Add, don't subtract. A dean at Vanderbilt in the article uses the right noun-verb combination: "students make grades," not "teachers give grades."

Jason Greenwood, a senior kinesiology major at the University of Maryland echoed that view.

�I think putting in a lot of effort should merit a high grade,� Mr. Greenwood said. �What else is there really than the effort that you put in?�

�If you put in all the effort you have and get a C, what is the point?� he added. �If someone goes to every class and reads every chapter in the book and does everything the teacher asks of them and more, then they should be getting an A like their effort deserves. If your maximum effort can only be average in a teacher�s mind, then something is wrong.�

Sarah Kinn, a junior English major at the University of Vermont, agreed, saying, �I feel that if I do all of the readings and attend class regularly that I should be able to achieve a grade of at least a B.�
These students have not been taught correctly. Freshman classes are meant to impart values for learning, and one of them is "you are graded in life on what you accomplish, not how much sweat you produced."


Apartheid discussions 

Following up on my post about the Gaza victims Qassam-launchers-shielded-by-children panel, I had noted the impassioned response of the director of religious and Jewish studies, who had tried to attend the panel and ask a question about the poster. He got loud after his question was ignored by the panelists, and was asked to leave by campus security. His response was to hold his own panel. Unapologetic, he explained,
"I asked those leading the panel to please help me understand what these pictures had to do with this event," Edelheit said. "If there was a direct answer to my question I would have left - it would have taken less than three minutes."

...Questions were raised as to why Edelheit has not organized or spoken on the same panel with Slisli and Tademe last Wednesday. Edelheit responded by saying he was refused and opportunity to be on the panel, but it has not been the first time Slisli and Tademe have denied him.

"I made a decision last Wednesday because these two professors have, for five years, ignored me and repudiated my presence on this campus," Edelheit said.

Having two separate presentations about the same topic negates the potential usefulness of a public forum, according to Edelheit.

"Separate discussions are fruitless," Edelheit said.
And there, in a nutshell, is the problem of university campuses. What is desired, a sharing of views, is not really the interest of the Left on campus. The last thing they want is intellectual diversity. They want separatism. Their students should be shielded from conservative thought, from anything that might interfere with the campus Left's fawning over Hamas. I'd like to thank Professor Edelheit for pointing out the real apartheid on our campuses, rather than this faux one the Left is inventing. (And it's not new, as this article from 1990 shows.)

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Media alert: Hot Air radio 

I'll join Ed Morrissey on Hot Air Radio at 2:30pm CT today to talk about the stimulus package, the mortgage bailout, and whither goeth the Obama economic plan. Be sure to tune in!

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"It's too hard!" 

Frequently students come to my office, usually near the end of the semester, and ask if I can give them an 'incomplete' grade for the class. They need more time, they say, to do the work required. Sometimes their reasons are valid, like an illness or in one case jury duty that lasted four weeks. Many other times, though, the student simply managed his time poorly, in which case the answer is 'no'.

I've posted and spoken on the Final Word about the inability of the DFL leadership in the Minnesota Legislature to come up with a budget plan. I think we're making some headway on this, because today DFL Assistant Leader Tarryble Clark responds that it's too hard for her to figure out a budget:
Perhaps an explanation of the well-established processes the governor and the Legislature follow when creating the budget will help ease the confusion.

Every two years the governor puts together a budget for the state for the next two years. The governor, his staff, and the staff at the agencies he controls are the only group capable of assembling a complete budget of the size and complexity our state requires.

There are hundreds of people working up to seven months to produce the documents that become our budget.

The Legislature's duty is to examine the governor's budget, seek input from the public and accept, reject or modify what the governor is proposing.
Not so fast my friend (with apologies to Lee Corso.)

First, the budget process does have the governor providing a budget. But what about new governors? How much extra time do they get, given they don't even know they're governors until the first week of November? The answer, according to the Senate, is three weeks. This seven months and a full staff explanation is a canard. If you really needed that long to develop a budget, you would not hamstring new governors with such a short time horizon.

Second, the idea that poor little Tarryl has nobody to help her and her colleagues develop a budget is, to be polite, connerie. The Senate has 211 full time staff members; the House, 249. That's more than four hundred staffers. The Senate has a budget of over $25 million. The House doubled the amount of money it spends on its committee structure. Why does Senator Clark think they are incapable of helping her develop a budget?

Third, Senator Clark has received $4,128 in interim per diem payments which means since the end of the special session last year. Not only was there 211 full time Senate staffers, they had access to 43 days worth of Mrs. Clark ($4,128 divided by the miserly per diem rate of $96.) Her leader, Larry Pogemiller, had 73 days; Tax Committee chair (and DFL gubernatorial candidate?) Tom Bakk, 60. If they did not have time to write a budget, what were they doing that they thought was more important? Do any of them intend to account for these days?

During these "listening sessions" -- and you can still sign up to speak, if you want -- you are probably not going to get answers to the following questions. You should ask them anyway:
  1. Can you account for the days you spent for which you received interim per diem payments?
  2. Why is it so hard for legislators to complete a budget when they have large, full-time staffs?
  3. Why does Minnesota state statute say a new governor has to come up with a budget within seven weeks of entering office, but the leaders of the Senate cannot in seven months? Is it too hard for you? Why?

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Wednesday, February 18, 2009

Wife Murders - A Glimmer of Light? 

In this post, I discussed the beheading of an Islamic woman, Aasiya Hassan, by her husband in Buffalo, NY. Also mentioned in that post was the silence of NOW. As in the past, the national president of NOW, Ms. Gandy, makes inane comments that attempt to equate all domestic violence or simply says nothing. Quoted in the Best of the Web Today, February 17, by James Taranto are the NOW responses to murder and/or violence perpetrated on women. Note Ms. Gandy's different reactions (or lack thereof) when the victim is from another culture:
One popular R&B singer, Chris Brown, assaulted and threatened singer Rihanna. Comment by Ms. Gandy: "Everyone is talking about this case because it involves two popular recording artists, but the sad reality is that domestic violence and dating violence happen every day, even among young teens, and the impact is both far-reaching and under-reported."

Relating to the Buffalo murder by Mr. Hassan, NOW issued this statement: ...

Two other cases were described: one from Murietta, CA where a Mr. Muhummed was sentenced to multiple life sentences for torturing and abusing some of his children and imprisoning two of his three wives; the brutalization of a woman by her husband, a vice consul at the Afghanistan Consulate in Queens. Ms Gandy of NOW issued this statement: ...
However, there may be a new wind blowing. Regarding the Buffalo murder, the NOW president in NY, Marcia Pappas, said: �This was apparently a terroristic version of honor killing, a murder rooted in cultural notions about women�s subordination to men.� She decried the scant national media attention paid to the story.

From Mr. Auhdi Jasser, founder and chairman of the American Islamic Forum for Democracy,
"It [the murder of Mrs. Hassan] certainly has all the markings of [an honor killing]," Jasser told "She expressed through the legal system that she was being abused, and at the moment she asked for divorce, she's not only murdered � she's decapitated."

His final comment is quite important: "The most dangerous aspect of this case is to simply say it's domestic violence," NOW, pay attention. Western press, pay attention. All behavior is NOT equal.

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Graph of the day 

That's right, the slope is negative. Graphic courtesy Marginal Revolution. Unlike many, I don't find this graph at all surprising. To get the bill through the Senate you need sixty votes, which means each state has two opportunities for pork. I pointed out last September research suggesting smaller states do better in earmarks. Given Michigan and California, it's probably also true that unemployment rates are higher in larger states.

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Editorial of the day 

If these sessions were really seeking to find grass-roots budget solutions or even common ground between differing proposals, wouldn�t there be more than just one proposal on the table?

But there�s not. The major focus of these meetings is to examine Gov. Tim Pawlenty�s proposal.

So how are Minnesotans supposed to judge his idea with nothing for comparison? Especially no plan from DFL leaders? Or is the idea to hold another statewide �town meeting� tour once that plan comes out?

We sure hope not.

As we have repeatedly noted the past several months, Minnesota legislators are facing a serious fiscal challenge � one that is their duty to overcome. Doing so will require creative thinking, common sense and the courage to cast votes that won�t always be popular.

Holding statewide �listening sessions� isn�t really a factor in any part of that equation.
Congratulations to the St. Cloud Times editorial board for seeing through this sham.

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Slightly better than burying dollar bills in bottles 

The stimulus bill will not result in much spending here in the St. Cloud area, at least not in transportation. Larry Schumacher reports:
A Waite Park road extension on the city�s southwest side is the only St. Cloud-area transportation project to receive funding thus far from a federal stimulus bill signed into law Tuesday.

Waite Park will receive $2.7 million from the stimulus bill to advance construction on a 28th Avenue extension between Minnesota Highway 23 and Stearns County Road 137, City Engineer Terry Wotzka said.

The project met the stimulus bill�s criteria of being �shovel-ready� and a job creator that would not have otherwise happened this year, Wotzka said.

...[APO Transportation Planner Kirby Becker] said the other two requests didn�t make the cut: $4 million to advance the West Metro Corridor realignment of Stearns County Road 134 and widening of Stearns County Road 4, and $3.5 million to extend the Beaver Islands Trail along the Mississippi River from St. Cloud�s Civic Center to Hester Park.

Duluth will receive $6.6 million for projects in the stimulus bill and Rochester will receive $8.5 million, he said.
Hard to believe we couldn't get the money for a bike trail in Oberstar's America. But I would have thought, given the Obama Administration's commitment to transparency, that we would understand why a road that goes to a park is chosen above a road widening that helps traffic flow between St. Cloud and growing Sartell.

The project begins in June, maybe.
Highlights of the project will include a four-lane, undivided roadway extension with a trail alongside and a new trail on County Road 137 near Quarry Park, plus a signal change at Highway 23 and the realignment of part of County Road 137 near the new intersection, he said.

Though the road project is 100 percent federally funded, Waite Park officials must still come up with up to $3.5 million in local funding to pay for a new sewer and water line installation, Wotzka said.

�This is a future growth corridor for the city,� he said. �The new sewer and water lines will facilitate that.�

City officials are still negotiating some right-of-way land acquisition that could delay the project, he said.
That's the last sentence of the story, and it says that maybe this project isn't shovel-ready. And it's a road to no businesses, only a residential area and a county park that could be "a future growth corridor." If it wasn't going to be otherwise funded, does anyone ask why? Could it be, perhaps, that it wasn't worth the money?

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Tuesday, February 17, 2009

The DFL's Whine and Cheddar Tour 

Because they're going to whine, and they want your cheddar. (Look, I know Minnesota Magical Misery Tour is out there, but why drag the Beatles into this?)

A copy of a letter from Rep. Gene Pelowski (DFL-Winona) to a selected group of constituents has been running around the GOP caucus. One of his paragraphs:

The purpose of this hearing is to get testimony from affected programs in every level of government, education, health care or service impacted by the cuts suggested by the Governor's state budget. ...

We would ask you to focus your comments on the impact of the Governor's budget including what is the harm to your area of government or program. Please be as precise as possible using facts such as number of lay offs, increases in property taxes, cuts in services, increases in tuition, elimination of programs.

As I've mentioned before, faculty here are being recruited by the local union to argue not only to spare MnSCU -- certainly understandable -- but today they include arguments to raise taxes instead to solve the budget wars.

On February 19th and 20th (this Thursday and Friday) legislators will be holding town hall meetings in state university communities to gather citizen input on how to solve the states massive budget shortfall.

.... The competition is fierce as K-12 education, health and human services, local governments and state agencies struggle to retain their slice of a shrinking state budget. In addition, business and taxpayer groups are pushing hard for Governor Pawlenty�s proposed tax cuts for corporations, which would further exacerbate the budget shortfall and cause deeper cuts. It is absolutely essential that we have a large turnout of higher education constituencies to support funding for higher education.

...Messages we want conveyed to legislators:

  • ...The Governor�s proposed cuts, if implemented, will almost certainly cause massive layoffs of faculty, which in turn will cause large scale cancellation of course sections, which in turn will make it difficult for students to complete in four years. This will cause students more money and delay their entry into the workforce.
  • The IFO supports increasing taxes on high income earners to help solve the budget shortfall. A Department of Revenue study showed that Minnesotans that earn over $105,000 per year pay a smaller percentage of their income in state and local taxes than Minnesotans earning less than $105,000. Tax rates on higher income Minnesotans are significantly less than what they were a decade ago.
  • The pain of the current economic crisis should be shared by all Minnesotans, not just students (through higher tuition) and public employees (through pay freezes and layoffs). IFO feels it is better to raise taxes on high income earners than raise tuition on students.

See this on the claim that state taxes on the rich are smaller. If they wanted to make the rich pay more, they might look at my corporate income tax post from yesterday.

But that's not what they're interested in. They just want more OPM.

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From where comes hope? 

I was reflecting on a new Economist article on the middle class today and thought to relate this to an article in the local paper on St. Cloud residents from India and their reaction to Slumdog Millionaire. One of the people interviewed in the Economist article is Surjit Bhalla, who is doing research in New Delhi on the emerging middle class there and has written a review, The American in Slumdog.
I have been somewhat surprised at all the hoopla surrounding this India-based film, in India. Too much poverty � what, know you not, there are middle class and rich Indians also? Why do people always revel in showing India in a bad light � by showing the exploitation within, by emphasizing its dark poverty? ...

The portrayal of poverty is no grounds for divorce from reality. If this had been the accepted wisdom, the world would have been denied de Sica�s The Bicycle Thief and our own Satyajit Ray�s Apu Trilogy. We should be embarrassed for even bringing up the idea of protesting the film, let alone discussing it in a juvenile fashion on TV. The bet is not on Slumdog to win because it glorifies the tragedy of poverty. No, Slumdog will win because it tells a quintessentially American story. And the appeal is enhanced by the Indian setting, and a Bollywood (may not love it but can�t leave it because it is so enjoyable) treatment.
I've not seen Ray's films, but The Bicycle Thief is a very dark movie of postwar Rome that hardly portrays Italy in a great light. The movie isn't about Italy. (I won't give the plot away, but you don't know the point of the movie until the climactic scene. If you haven't seen it, please do. If you must spoil it, you can get most of the point in Roger Ebert's review.)

Likewise, the slums of India are not the point of this movie, as Bhalla tells it:

My first article in journalism was written in the winter of 1980. It was entitled �In Defense of Attenborough�. Many Indians then were up in arms � how dare an Englishman, and not an Indian, make a film about the Father of the Nation? And why not, I argued � perhaps he will have a more detached perspective. Ditto in the case of Danny Boyle � he has made a better film on Indian slums, and universal hope, than most Indians could. The reason no Bollywood filmmaker could have made as good a film on �poverty� is because, well, Bollywood is not that interested in doing so. Befitting the upward mobility and aspirations in our society (shades of being American?), Bollywood is much more interested in luxury and fantasy and Sydney Harbour and the Swiss Alps than even a stylized version of the �real� India. One does not have to be poor, or live in a poor society, to make a film about hope despite poverty. One just has to be human � thankfully, none of the jingoistic and mis-guided critics have denied Boyle his abundant humanity.

The movie tells an American story, or is it Indian? Rags to riches, and the worth of an education. Both American and Indian children need to know the names of the Three Musketeers. Fighting the odds and coming out ahead. Being optimistic about pulling through rather than being burdened by the pessimism of reality. Aspiring to be middle class, dreaming of a better life. And often, making dreams happen. Only in Hollywood-Bollywood movies or only in America and India?

There was a time, not so long ago, when the Americans believed in themselves, and their power to change their destiny. Always, the most positive person in the room was the American � the most pessimistic the German. A bit like Boyle�s and Ray�s treatment of poverty � one sees hope and emergence, the other sees despair and unrelenting loss.

One of the Indians interviewed in the St. Cloud paper, a colleague of mine, says "As soon as they showed the slum in the movie, I said we should have known that the West has made this movie � that�s what a Westerner would show of India." No, what a Westerner shows of India is quintessentially American. It is a place that still has a relatively low Gini coefficient (much lower than China's) which nevertheless will see increasing inequality as their IT-led expansion, fueled by easy connectivity to the world, increases their middle class dramatically. There are, as the Economist article points out, two middle classes in the developing world. One can be middle class anywhere in the world; some of these 'global middle class' make up the faculty quoted in the article. A second group, a 'developing middle class', can be so in their country but not in the West. The protagonist in Slumdog has that dream, and has that education. He learns because he lives in a country where that modest dream can be made -- he can be a millionaire in his own land, even if he would seem poor in another's. By one Indian think tank's projections, half of the urban dwellers in India will be middle class by 2016. Their populations are swelling now, and for now they move into low-rent housing, where they dream. Bhalla concludes that the movie about rooting for the underdog � a clich� but never a truer one. Look at the villains in the movie � they are not an example of thinly disguised racial profiling, but you and me. Heck, even the hero of the movie is a Muslim.

The movie succeeds because everything portrayed is plausible � not likely, but possible. It is a movie about the celebration of hope, about the reach being further than the grasp. How can you get more American than that � or more Indian?
(BTW, I have been wracking my brain trying to think of an Armenian movie to fit this theme, but haven't come up with one. Perhaps cinema in Armenia is just too small. Comment please if you think of one.)

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The feel-good profit 

I love the grandiose title:
SCSU goes trayless in dining hall to save Earth, trim costs
SAVE EARTH! Glorioski, how'd they do it?! Here's the story:
The Garvey Commons experimented with trayless food service earlier this year and then asked students about making the change permanent. Garvey will be largely trayless for the rest of the year and all of next year, and another evaluation will be done to see if the change will continue.

Going trayless saves 650-740 pounds of food waste a day, 400-500 gallons of water a day and allows Garvey to use about 10 percent less soap, rinsing solution and other chemicals. It also forces students to make better choices of how much food they eat; they won�t add food to a tray just because they have the room.
I envision a whole new diet plan, to be heard soon on Oprah: Throw away the dinner plates. Have your family eat off small plates and they'll eat less.

Let me explain: Sodexho, our food service operator, is going to "save 650-740 pounds of food waste a day". Cui bono? Why, Sodexho! It serves less food and saves on detergent. Is any of the savings to be shared with students? No, because they are SAVING EARTH!
According to the survey (done after the trial), 66 percent of students said the benefits to the environment outweighed any inconvenience of going without trays. And 69 percent said the benefits of possibly saving money on their meal plan outweighed any inconvenience of going without trays.
Don't hold your breath on getting that cash, Sarah Student. And the newspaper blithely joins in, on page one, with that headline, helping to perpetrate the fraud. Students accept inconvenience in return for feeling good, and nobody is going to correct their errors.

UPDATE: It's a fad in many places.

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Balkanized student bodies 

The authors of The Diversity Challenge followed 2,000 UCLA students for five years in order to see how diversity affects identities, attitudes, and group conflicts over time. They found that racial prejudice generally decreased with exposure to the ethnically diverse college environment. Students who were randomly assigned to roommates of a different ethnicity developed more favorable attitudes toward students of different backgrounds, and the same associations held for friendship and dating patterns. By contrast, students who interacted mainly with others of similar backgrounds were more likely to exhibit bias toward others and perceive discrimination against their group. Likewise, the authors found that involvement in ethnically segregated student organizations sharpened perceptions of discrimination and aggravated conflict between groups.
An interview from the Chronicle of Higher Education (temp link) expands on this point:
Our results in The Diversity Challenge show fairly convincingly that, while such organizations also have some positive benefit (in terms of increased attachment to the university as an institution), there are also clear negative results among both white and minority student groups. Although the negative effects of Greek-group membership seem a little more toxic among white students, the negative effects on intergroup attitudes of these group memberships seem fairly similar among both white and minority student groups. The mediating mechanism seems to be the same among both types of student groups. This is to say that relatively high ethnic identification leads students to join ethnically oriented groups, and once in the groups, ethnic identification increases further, leading in turn to an increased sense of ethnic victimization.

In terms of policy recommendations, it is very unlikely that university administrations will be able to ban ethnically oriented student organizations. Rather, I would recommend that university administrators do as little as possible to encourage the formation of such groups. For those ethnically oriented groups that continue to exist nonetheless, there should be affirmative effort expended to increase the level of interethnic contact for members of such organizations.
The authors follow UCLA students for about six years from their entry to university and find several other patterns:
My thanks to reader jw for the link.


Monday, February 16, 2009

Now hold on there, barkeep 

I love this thing, really I do -- it is proof that God loves us and wants us to not be bored to death by bad bartenders -- but did the sign on there say �1000? �That's almost $11. �Survey says, perhaps. �Good article here on the Japanese beer market, which has led to bad beer.

Update: �Looked like the fellow was going to get change at the end, yes? �Looks like the sign on the right says �400. �You have to have a �1000 note to buy a �400 beer? �Who puts up with this sort of thing? ��400 would be rather cheap for a beer, so maybe it's�happoshu.

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Podcast of the week 

A week late because I finally listened to it this morning, but this is one of the few I will not delete from the iPod. Daron Acemoglu provides a good interview for Russ Roberts. Here's the essay on which the podcast was based. I just finished reading it about ten minutes ago. I'm pretty sure it will be added to the development class' reading list tomorrow. Largely, I want them to discuss this paragraph:
Our trust in the self-monitoring capabilities of organizations ignored two critical difficulties. The fi?rst is that even within fi?rms, monitoring must be done by individuals the chief executives, the managers, the accountants. And in the same way that we should not have blindly trusted the incentives of stockbrokers willing to take astronomical risks for which they were not the residual claimants, we should not have put our faith in individuals monitoring others simply because they were part of larger organizations. The second is even more troubling for our way of thinking about the world: reputational monitoring requires that failure should be punished severely. But the scarcity of speci?fic capital and know-how means that such punishments are often non-credible. The intellectual argument for the fi?nancial bailout of Fall 2008 has been that the organizations that are clearly responsible for the problems we are in today should nonetheless be saved and propped up because they are the only ones that have the "specifi?c capital" to get us out of our current predicament. This is not an invalid argument. Neither is it unique to the current situation. Whenever the incentives to compromise integrity, to sacrifi?ce the quality, and to take unnecessary risks are there, most companies will do so in tandem. And because the ex post vacuum of speci?fic skills, capital and knowledge that their punishment will create make such a course of action too costly for the society, all kinds of punishments lose their effectiveness and credibility.

Who pays corporate income taxes? 

Here's a case where the news completely misunderstands what it is reporting on. �An AP report on the new Minnesota Tax Reform Commission report is headlined by our local paper "Tax Plan Targets Shoppers, Smokers".

Shoppers and smokers might have to plunk down more pocket change at the cash register to improve Minnesota�s business climate, under a proposal released Friday.

That's the first sentence, and it portrays businesses as separate from households. This is of course not true. The Tax Incidence Study done every two years here in Minnesota shows that of the $780 million collected in the corporate franchise tax, much is shifted to others. The report states that, while the taxes are legally paid by businesses, they are "...partially shifted to consumers (in higher prices) or in some cases to labor (in lower wages). Only a portion of business taxes are borne by capital owners as a lower rate of return on their investment." (p. 32)

To see this, take a look at the incidence report's Table A-1 at page 77. �For a $120 million in additional tax on capital, only $61 million is borne by Minnesota businesses. �Minnesota labor receives wages $3.8 million lower because of the tax. �Most of the tax is borne by consumers because businesses raise prices to shift the burden of the tax onto purchasers of their products. �Turning that into a sales tax does not mean a dollar transfers from consumer to business, as the corporate tax was mostly being transferred to consumers anyway. �Consulting Table A-2 we find that $.42 of each dollar of corporate tax was transferred to Minnesota consumers, and another eight cents to labor.

Alas, that point seems lost on our political leaders, even Governor Pawlenty�who created the commission:

First reactions from state leaders � including Gov. Tim Pawlenty, who appointed the 15-member commission � were tepid. Pawlenty spokesman Alex Carey said the GOP governor wants to make Minnesota more business-friendly but isn�t embracing the proposal to expand the sales tax.

�He does not like the idea of raising sales taxes on consumers,� Carey said in an e-mail.

House Speaker Margaret Anderson Kelliher also had reservations.

�It�s interesting to raise taxes on Minnesotans to pay for a corporate tax cut for people who may not even be Minnesotans,� said Kelliher, who added that she plans to study the report.

Kelliher is correct, that the tax is borne by out-of-state capital holders. That's because 90% of corporate capital is owned by out-of-staters.� But that means as well that a lowering of their tax rate will pull capital from other states into Minnesota, rather than the other way around. �Do you think Speaker Kelliher would be interested in having capital move back into Minnesota? �We already have a tax rate much higher than the national average. �Governor Pawlenty has proposed simply to get to the average by halving the rate. �How much more capital would we gain if we went to zero?

The commission report is a nice piece of work (full disclosure: �I had a chance to review and comment on the report before its publication.) �There's a lot more in it than the part the newspapers have reported. �My bias is towards the kinds of demographic concerns expressed in page 10 of the report:

The number of Minnesota workers reaching retirement age jumped 30% in 2008 as the first members of the Baby Boom generation turned 62. The number of workers turning 62 is expected to double by 2013, compared with 2006 levels. Meanwhile, the rate at which younger workers enter the workforce is leveling off, and the number of Minnesotans in the 18-25 age group will decrease in the next 15 years. Minnesota�s labor force grew 1.5% annually during the 1990s, but annual growth will slow to 0.1% by the 2020s.

As boomers age, leaving a slower-growing workforce in their wake, they will reshape Minnesota�s revenue and spending as never before. Aging workers will likely pay sharply lower state income and sales taxes once they retire, even as their health-care needs increase. These demographic changes will increase pressure to raise business taxes to solve revenue shortfalls and finance spending growth as baby boomers retire. To grow, Minnesota must expand its tax base by attracting new or expanding businesses and the high-quality jobs they bring. It�s crucial to fill the gap without resorting to anti-competitive tax increases.
It is unlikely that this gets dealt with in the current legislative climate of deficit panic, but someone needs to save the Commission's report to implement when the panic subsides.

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Why President's Day??? 

For many going through school, there was always some history covered in February. First we studied and celebrated Lincoln's birthday, February 12. We learned of Abraham Lincoln's growing up in Indiana, teaching himself to read, doing a number of jobs to make a living. At age 21 he moved to Illinois where he eventually ecame a member of the IL General Assembly and the US House of Representatives. He earned a living as a lawyer.

He opposed slavery and argued for years against its spread. A speech that propelled him to national attention was given in a race for US Senate against Stephen Douglas in 1858. Though Lincoln lost the Senate race, this speech was a turning point in his political career. The most quoted line from this debate is:
"'A house divided against itself cannot stand.'(Mark 3:25) I believe this government cannot endure permanently half slave and half free. I do not expect the Union to be dissolved � I do not expect the house to fall � but I do expect it will cease to be divided. It will become all one thing, or all the other."
Students know he was President of the United States and was Commander in Chief during the Civil War, a war fought to preserve the union, that is, keep the United States from becoming two (or more) nations, abolish slavery in the southern states (done with the Emancipation Proclamation) and prevent slavery's expansion to new states as the US moved west. His most famous speech, The Gettysburg Address, remains one of the most quoted in US History. In just over two minutes, Lincoln invoked the principles of human equality espoused by the Declaration of Independence and redefined the Civil War as a struggle not merely for the Union, but as "a new birth of freedom" that would bring true equality to all of its citizens, and that would also create a unified nation.

The second president we studied and celebrated was the birthday, February 22, of our nation's first president, George Washington. He is known for: leading the Americans against the British in the Revolutionary War; working with the great minds of the time in the crafting of a government founded on the principle (a first) that all men were created equal and that people could govern themselves; and becoming our first president.

Washington had a physical presence that commanded respect yet he was humble enough to value the opinions and decisions of others. Some wanted him to become king. He refused and by refusing, set the stage for a limit of two terms for the presidency. This was practice was honored until Franklin Roosevelt (D) became president during the Depression. Later the two-term limit was codified in the US Constitution by the 22nd Amendment, passed in 1947.

Today, much of what our children learn is about the negatives of these two incredible men.
While there are many good presidents, these two, more than others set the stage for what has become an experiment in freedom, real freedom. Lumping them with all presidents, into a "Presidents Day" diminishes their achievements and ideals.

We would not have what we have today, nor would so many people from so many cultures be able to live as we do without the ideals created by our Founders and put into practice by these two great men. Ideals have to be created, defined, then put into action. Both of these presidents understood that an elite class cannot hold sway over others - that once that happens, freedom for all erodes and eventually disappears.

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Sunday, February 15, 2009

When you owe the bank $30,000... 

I was talking with Ed Morrissey before his show today (UPDATE: �Yes,�Mitch�and Ed's show; some people!) -- which, by the way, was screamingly funny and good so go listen -- and he was telling me about a post he did about a Chinese official who said that China is pwn3d by the U.S. treasury.
Luo Ping, a director-general at the China Banking Regulatory Commission, said after a speech in New York that China would continue to buy Treasuries in spite of its misgivings about US finances.

Mr Luo, speaking at the Global Association of Risk Management�s 10th Annual Risk Management Convention, said: �Except for US Treasuries, what can you hold?� he asked. �Gold? You don�t hold Japanese government bonds or UK bonds. US Treasuries are the safe haven. For everyone, including China, it is the only option.�

Mr Luo, whose English tends toward the colloquial, added: �We hate you guys. Once you start issuing $1 trillion-$2 trillion [$1,000bn-$2,000bn] . . .we know the dollar is going to depreciate, so we hate you guys but there is nothing much we can do.�

However, Mr Luo said Chinese officials would encourage its banks to finance domestic mergers and acquisitions rather than provide rescue finance to distressed financial companies in other countries: �There will be no bottom-fishing of financial institutions, particularly in the US, because there is a lot of uncertainty about the quality of the books.�
The reason for this is clear. Luo is correct that the dollar will depreciate as new debt hits the market. The decline in the dollar will jack up interest rates. China, of course, currently holds $682 billion in U.S. Treasuries, and if the interest rate rises the country will take a bath on those investments. As the old saw goes, when you borrow $30,000 from the bank the bank owns you, but when you owe the bank $30 million, you own the bank. �So other China observers are thinking the country needs to get guarantees on U.S. fiscal policy, but Luo lets us know the game is up. The 10-year bond has amazingly maintained value through the week, adding 16 basis points on Friday but down over the week.
China may voice its concerns over U.S. government finances and the potential for a weaker dollar when Secretary of State Hillary Clinton visits China on Feb. 20, according to He Zhicheng, an economist at Agricultural Bank of China, the nation�s third-largest lender by assets. ...

�In talks with Clinton, China will ask for a guarantee that the U.S. will support the dollar�s exchange rate and make sure China�s dollar-denominated assets are safe,� said He in Beijing. �That would be one of the prerequisites for more purchases [of T-notes].�
Treasury Secretary Tim Geithner said so on television last Tuesday:
A strong dollar is in the interest of the United States. Our obligation is to try and make sure we are pursuing policies that are going to improve confidence in Americans and around the world that we're doing things that are going to help this country ... grow more rapidly.

What we're hearing between China and the US is a quid pro quo: Treasury will accept weaker export growth in return for getting the Chinese to help finance the Obama deficit. The reasons are manifold, but among them are the high rate of savings in China and its need to keep an export market in order to employ workers flocking to the urban areas from its vast countryside. �Maintaining export markets in China means resisting the demands made during the Bush years that China stop managing its exchange rate, which it now will enlist the U.S. to help. �A high savings rate is destroyed if the renmimbi-denominated return on U.S. Treasuries is negative. �(For more, listen to this excellent interview of Vincent Reinhart on the Dennis Prager Show last week.) �

The Obama administration might try to talk a good game on China's exchange rate policies, but Luo's statement is a clear signal that it will have to soften in order to maintain the flow of loanable funds from Asia. �If you're an exporter or someone who faces competition from importers, you can add that to the many other reasons to not like the start of the Age of Socialism.


Imagine a Headline: Beautiful Wife of Televangelist Crucified 

If this event had happened, there would be an immediate media firestorm. That story would have legs, with multiple angles for reporting: Religious hypocrisy. Sex and gore. Domestic Violence. A gruesomely unusual method of killing.

There can be no doubt that national and international newspapers and television would run endless breathless stories. Think Nicole Simpson, Mathew Shepard, Lorena Bobbitt, and Jim and Tammy Fay Bakker. Outraged women's groups would be interviewed. There would be no holding back, even though the public image of Christianity would take another hit.

Now consider a real story with the potential headline: Beautiful Wife of Televangelist Beheaded

Virtual silence by the same media. As of the time of this post, a search on Google News turns only a handful of published stories, mostly local, about the murder of this beautiful woman.

What accounts for the difference? Most people would have no difficulty completing this analogy: crucified::Christianity beheaded::??

The Associated Press carried the following short item on Friday:
ORCHARD PARK, N.Y. (AP) - A Buffalo-area man who runs an American-Islamic television station is accused of beheading his wife.

Orchard Park police say 44-year-old Muzzammil Hassan told police Thursday evening that his wife was dead at his office. That's where police found the body of 37-year-old Aasiya Hassan.

Hassan is now charged with second-degree murder [J:???] and police believe the killing occurred sometime late Thursday afternoon. Authorities say his wife had recently filed for divorce and had an order of protection that had him out of the home as of February 6th.

Hassan is the founder and chief executive of Bridges TV, which he launched in 2004 in hopes of portraying Muslims in a better light. [J: oh, really?]

Police didn't know Friday if Hassan had an attorney.
The only major outlets carrying the story as of now are the Toronto Star and the New York Post. Craven cowardice and political correctness reign. Update - Mark Steyn and Michelle Malkin have posted.

Where are the feminists? NOW? The media that is so quick to ridicule and condemn Christians and Jews? Just how fair and just is this barbaric behavior so easily ignored by western press?

Footnote: the standard texts to be read in our Lutheran church today condemns religious hypocrisy in this passage from I Corinthians Chapter 9, Verse 27: I pommel my body and subdue it, lest after preaching to others I myself should be disqualified.

Don't you wonder what is being preached in mosques today?

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Friday, February 13, 2009

Porkopolus - Possible Defeat? 

As King posted here, "Way to go, US Congressional Republicans!" Thank you, Eric Cantor and crew.

Now, if you still have minutes on your cellphones, call any of the following - only one need defect to stop the porkopolus bill in the US Senate. If you can't get through, look up each senator and call one of their offices in their respective state. Keep trying - I eventually got through to all of them.

Sen. Arlen Specter: 202-224-4254 - PA
Sen. Olympia Snowe: 202-224-5344 - Maine
Sen. Susan Collins: 202-224-2523 - Maine


Collin Peterson, please claim your prize 

The Final Word, having reviewed the roll call for the final vote on the stimulus bill, wishes to award Rep. Collin Peterson a prize for being one of only seven Democratic representatives to vote no on the stimulus bill. I don't know what it will be; had I one of those Rodrigue Blue Dog paintings, I'm pretty sure that would be it. (The Patriot's budget will not permit a $1500 prize, nor does House ethics rules.) At any rate, I'll spend the evening working on Tribute to a Blue Dog.

Tim Walz, Not a Blue Dog. (I have Sandler's Hanukkah Song in my head, why?)

Thursday, February 12, 2009

Your money or your bank 

Simon Johnson provides this paragraph from a "�research� note from a major international bank" (emphasis in original):
One main stumbling block to the purchasing of troubled assets has been pricing, specifically how does the government price a diverse set of assets in a way that does not put the taxpayer on the hook. However, this should not be the standard by which we judge the efficacy of the plan, because a more prolonged deterioration in the economy will result in a higher terminal unemployment rate and a greater deterioration of the tax base. As such, the decline in tax revenues will crimp many of the essential services provided by the government. Ultimately, the taxpayer will pay one way or another, either through greatly diminished job prospects and/or significantly higher taxes down the line to pay for the massive debt issuance required to fund current and prospective fiscal spending initiatives. We think the government should do the following: estimate the highest price it can pay for the various toxic assets residing on financial institution balance sheets which would still return the principal to taxpayers.
Let me repeat this: You are not supposed to be happy to be bailed out. And you sure as hell shouldn't be issuing ultimata by deciding what the taxpayers' rate of return on your bailout should be.

You wouldn't be this cheeky in Sweden.


Create vs save, create vs create 

The stimulus bill heads to passage. "In a statement, the president thanked Congress for agreeing to a measure that he said would save or create 3.6 million jobs." Courtesy Menzie Chinn,
...the legislation would increase employment by 0.8 million to 2.3 million by the fourth quarter of 2009, by 1.2 million to 3.6 million by the fourth quarter of 2010, by 0.6 million to 1.9 million by the fourth quarter of 2011, and by declining numbers in later years. The effect on employment is never estimated to be negative, despite lower GDP in later years, because CBO expects that the U.S. labor market will be at nearly full employment in the long run. The reduction in GDP is therefore estimated to be reflected in lower wages rather than lower employment, as workers will be less productive because the capital stock is smaller.
I found that paragraph interesting. Chinn has the table that shows it. The letter quoted above explains as well how they come to this conclusion.
In contrast to its positive near-term macroeconomic effects, the legislation would reduce output slightly in the long run, CBO estimates, as would other similar proposals. The principal channel for this effect is that the legislation would result in an increase in government debt. To the extent that people hold their wealth as government bonds rather than in a form that can be used to finance private investment, the increased debt would tend to reduce the stock of productive private capital.
This, of course, is crowding out, and while there might be some public investment that works to better the capital stock, CBO says the opposite might be true.
For example, increased spending for basic research and education might affect output only after a number of years, but once those investments began to boost GDP, they might pay off over more years than would the average investment in physical capital (in economic terms, they have a low rate of depreciation). Therefore, in any one year, their contribution to output might be less than that of the average private investment, even if their overall contribution to productivity over their lifetime was just as high. Moreover, although some carefully chosen government investments might be as productive as private investment, other government projects would probably fall well short of that benchmark, particularly in an environment in which rapid spending is a significant goal. The response of state and local governments that received federal stimulus grants would also affect their long-run impact; those governments might apply some of that money to investments they would have carried out anyway, thus lowering the long-run economic return on those grants. In order to encompass a wide range of potential effects, CBO used two assumptions in developing its estimates: first, that all of the relevant investments together would, on average, add as much to output as would a comparable amount of private investment, and second, that they would, on average, not add to output at all.
So to "create or save 3.6 million jobs" means to believe that every dollar this government spends will create the same amount of work that those dollars would have created if they were invested by the private sector. How likely do you find that assumption?

The reduction of output CBO believes would happen if government investment did not add to output at all appears to be 0.2% of potential GDP, or about $30 billion per year in current dollars. But that's $30 billion per year forever. To put it another way, if the long-run trend growth rate of per capita GDP in the U.S. economy was 2% per year -- roughly so for the last fifty years -- we would double living standards every 36 years. If we cut that rate to 1.8%, it now takes 40 years to double living standards in America. That's the cost to your grandchildren, a 10% decrease in the long-run growth rate of the U.S. economy. For what? Cars that make the Smartcar look roomy?

This isn't just about "creating or saving jobs" now. It's about creating jobs or creating capital. Congress and President Obama appear to be hostile towards the latter.

UPDATE: A Ray Fair forecast, via Greg Mankiw:
An interesting feature of the results is that in 2011 and 2012 real GDP growth rates are larger in the baseline case than in the stimulus case. As the stimulus measures wear down, the growth of the economy is negatively affected. There are also in the stimulus case in 2011 and 2012 negative stock effects (durable stock, housing stock, and capital stock), negative effects from the higher price level, and negative effects from higher interest rates, which are the result of the more expansionary economy in 2009 and 2010.
The debt runs to over $9.5 trillion in that model. Taxes, anyone?

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Cross-subsidization in the university 

Departments on our campus are trying to raise revenue, and one way is through differential program-based tuition.
SCSU's art department currently charges $20 per credit for non-general education courses as a part of program-based tuition, a program they started in spring 2007. It is in the process of increasing that number to $26 per credit starting fall 2009.

This cost is similar to the technology fee all students pay to use the open labs on campus, only it is used for specific departments to help pay for service materials. It replaces any course fees students previously had to pay to cover costs of materials needed for class, including computers.

David Sebberson, art department chair, is trying to get another computer lab for his department. "It's all about timing," he said. "The university hasn't figured out a good way to fund and support department based computers."

The open labs, funded by the technology fee are replaced every three years, while department materials get replaced whenever they can fit it in the budget. Program-based tuition has increased the art department's budget by $130,000.

With the extra $6 per a student, the second computer lab could be constructed and over the next few years, the software can be purchased as well as other new equipment.

With the status of the economy, one would think the extra costs with program-based tuition would turn people away from departments that use it, but Sebberson said the opposite has been true for those in art majors.

"Enrollment has continued to increase," he said, with the number of credits generated increasing by 1,000 from the 2006 school year to the 2007 school year.

The nursing science department started program-based tuition in spring 2007 as well, charging $25 per credit.

The mass communications department is following suit, currently in the process of shifting to program-based tuition planning $25 per credit, getting rid of the existing course fees.
We're told we can't do this because a student paying a higher tuition is going to have to get something extra. Because the art student takes home a painting or a clay ashtray you can nick him an extra $78 for your usual three-credit class. What about art appreciation courses? What do they take home? Because we don't give them software, our department is told it cannot collect to support software for teaching econometrics and forecasting.

Of course, the departments are trying to collect revenue without reflecting any of the cost. Those extra 1000 credits the art department teaches requires someone to teach them. Is that an extra faculty member? What did that person cost? Did those students make the classroom more crowded and reduce learning for those already there? How much did that cost? And what if demand for art went up -- how much would enrollment have risen in the absence of the fee?

I don't see differential tuition as a big problem; you can cure a lot of congestion in popular classes with it. I suspect this is in fact what we're seeing, at least with nursing and mass comm: two popular programs that are competitive to enter and from which departments are collecting rents. But universities produce students jointly across departments. The math department puts valuable skills into my economics majors. I'd like them to be subsidized. My principles classes put some logic and critical thinking skills into the person taking art appreciation, but I don't get the art department's money.


Why should I care Customer Service's computers are down? 

They changed carriers here for my Wall Street Journal subscription a couple of weeks ago (the old guy, named Rick, who had done it for over twenty years, is now going to run a Santa school -- he must be planning on that recession lasting through '09) and as I feared the new fellow is not as reliable. Today marks the third day in a row I have not received the paper, so I finally relented and called the Journal to report the missing papers. They make you type in a 12 digit number which you would know if you had the paper, but you don't. (They ask for a phone number alternatively, but which one? Most of us have three.) So hang up, go online to find the subscription number. Can I input the missing paper report there? No. Call again. Input the number, which only gets you to a queue.

After twelve minutes someone answers. "Our computers are down today, so I can't help you with your account."

Excuse me? I've been here for 20 minutes (OK, 12 on hold, but eight more to find the numbers and get through the screens to get to hold.)

"Sorry sir."

I wanted to report missing newspapers the last three days. Can you help me with that?

"I can copy down your information and get a report out when the computers come back up."

So you CAN help me?

[sigh] "Yes."

Until the sigh I wasn't sure the call center was in the US. If you can't help me, don't answer the blanking phone. If you can help me, tell me how rather than tell me your computer is down. I don't care about your computer. I am the customer; I'm not in a business relationship with you to care about YOUR problems while I am paying YOU.

That Kindle 2 is looking better and better.


Wednesday, February 11, 2009

What's happened to TIPS? 

One of my colleagues points out that the Cleveland Fed is no longer tracking expected inflation using data from the TIPS market.
We have discontinued the liquidity-adjusted TIPS expected inflation estimates for the time being. The adjustment was designed for more normal liquidity premiums. We believe that the extreme rush to liquidity is affecting the accuracy of the estimates.
Interestingly, yesterday the New York Fed held a conference inflation-indexed securities and risk management. Fleming and Krishnan presented an interesting paper on the TIPS security. They explain that the spread between same-maturity Treasuries and TIPS actually contain two premia, one for liquidity and one for inflation. They normally work in opposite directions. But look here, at the last 12 months for the 10-year bonds indexed (blue) and unindexed (green).
Now the inflation risk would seem to be higher; if you are in a world where some people shout "hyperinflation!" and others shout "deflation!", you can be pretty sure inflation uncertainty went up. That would push down the yield on the inflation-protected security, because the buyer is transferring that risk onto government. But if the TIPS market is less liquid -- even more so with the flight to safety underway -- we have a big counterweight. After seemingly inflation risk was increasing in December and early January, we're seeing some closing of the gap as real yields appear to be increasing -- or the liquidity premium rose -- or the deflationary threat is perceived more real -- or...

And if the FED is doing the Twist around the 10-year note, I have no idea what the spread means. But one thing is clear -- a gauge of expected inflation has been disrupted in the market.

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It's good to be the timekeeper 

And that's the job Tony Sertich, DFL head of the House Rules Committee, is seeking to do. A new rule is being debated in his committee today:
2.42 TIME LIMIT FOR CONSIDERATION. The Committee on Rules and Legislative Administration may establish and shall announce parameters for floor consideration of a bill, resolution, or other matter before the House.

That means that Sertich can decide how long any bill can be debated, so that those bills that are railroaded through by the DFL majority, which the GOP would like to amend, might get so short a debating period that very few amendments can come forward. This body, which as managed to get exactly one piece of legislation to the governor's office so far this year, and can't produce a budget alternative, is instead making sure the minority in the Legislature doesn't get to speak on key pieces of legislation.

If the rule passes in committee today, it might make it to the floor tomorrow. �How long will legislators get to debate it?

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Tuesday, February 10, 2009

Vaporware as bank regulatory policy 

vaporware, n., New software that has been announced or marketed but has not been produced. ... Software that is not yet in production, but the announced delivery date has long since passed.
Today Treasury Secretary Geithner went to Congress and unveiled the long-awaited plan, from the guy who's so smart that we can just ignore tax laws. What did we get from him? Transparency, which means we get a new website. What's on it?
This site is coming soon.
Sort of like "the check's in the mail", eh, Mr. Geithner?

At the bottom of that page, however, there's a link to a seven-page pdf that actually smells like a plan. A comprehensive stress test, it says. A stress test means creating some relatively rare scenario or scenarios, and then doing a valuation model of the bank under those scenarios. They've been part of the Basel II framework for years. What does comprehensive mean, though? And it's not like we knew what the next crisis would be. Comprehensive might only mean all banks (over $100 billion of assets). I am not sure.

It's not clear from the document whether the regulators will do a full inspection of all the banks (like FDR in 1933).

Then I find this: While Geithner's statement says a public-private partnership, it looks like the capital fund comes from the government alone:

While banks will be encouraged to access private markets to raise any additional capital needed to establish this buffer, a financial institution that has undergone a comprehensive �stress test� will have access to a Treasury provided �capital buffer� to help absorb losses and serve as a bridge to receiving increased private capital. While most banks have strong capital positions, the Financial Stability Trust will provide a capital buffer that will: Operate as a form of �contingent equity� to ensure firms the capital strength to preserve or increase lending in a worse than expected economic downturn. Firms will receive a preferred security investment from Treasury in convertible securities that they can convert into common equity if needed to preserve lending in a worse-than-expected economic environment. This convertible preferred security will carry a dividend to be specified later and a conversion price set at a modest discount from the prevailing level of the institution�s stock price as of February 9, 2009. Banking institutions with consolidated assets below $100 billion will also be eligible to obtain capital from the CAP after a supervisory review.

That appears in some way to be a continuation of the Paulson Plan of recapitalization and then, as Jim Hamilton says, hope for the best. This is not impressing economists.

Worse, there's very little in the way of clarity on the public-private investment fund (p. 3 of the fact sheet), and an apparently close relationship with the Fed. �Hamilton makes the point:

The Treasury is acting as though there's a sixth party who can step into the funding gap here in the form of the Federal Reserve. Once again, that will be OK if Plan A works out, that is, if things go well enough that the Fed's losses on any assets acquired and loans extended are limited to the TARP funds already authorized. But if not, we're back to the same calculation-- the Treasury must borrow (if foreigners remain willing) and taxpayers must ultimately pay the bill. Either that, or the Fed just covers the bill by printing money for the whole thing.
The result is that all we have is vaporware -- a forthcoming multi-trillion-dollar product that has been marketed but not delivered. ("Marketed"? Yes. "...tomorrow my Treasury Secretary, Tim Geithner, will be announcing some very clear and specific plans for how we are going to start loosening up credit once again.") �Mark Thoma:
Geithner's attempt at reassurance, that they're not quite sure how the program will work, or if they will get it right, but be assured that they are determined to keep tinkering with the program until it does work, has just the opposite effect. It undermines confidence. Why not wait until they actually have a plan before going public?
Because the boss said jump.

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From your local public employee union 

I want faculty to testify---I�m afraid that the administration may try to dominate this, which would be tragic, since they will never bring up the need to raise taxes (which legislators need to hear), ... . I am also worried that anti-government/anti-tax groups may try to swamp these meetings. Start recruiting faculty and student turnout.
From an email from my union a few minutes ago, turning out the tax consumers for the Beggars' Banquet Budget Townhall Meetings. Emphasis added.

Smells like extra credit for students!

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What kind of jobs? 

Q. What is the chance of getting a job at my regular trade?
A. If you are not working at your regular trade on the project, it is probably because there are no jobs open for your particular trade. This is one of the toughest problems the Work Program has had to meet, because the Government projects don't call for many different trades. Many skilled workers have to take common labor jobs. For example, it is impossible to hire skilled miners, skilled tailors, and skilled weavers on Government projects. The Work Program does not have projects like these, because they would interfere with private business. You should file an application at the National Reemployment Service office for work at the trade you know. They will let you know if they get a call for a man of your experience.
From the WPA Workers' Handbook. Media Matters is wondering how building a community wave pool doesn't create jobs. Russ Roberts explains:
The idea isn't just to employ people. The idea is to employ more people than we're employing now. That's the claim of stimulus. It's not enough to spend money. It's not enough to hire people. The claim of President Obama and Brad DeLong and others is that by spending money, other things that wouldn't otherwise have happened, will happen.

Yes, constructing a pool requires workers. But if workers who know how to build a swimming pool are already fully employed or close to it, then building a community wave pool is just going to drive up the wages of construction workers. Those higher wages discourage people from building a pool in their back yard or paving their driveway. If that's the case, then NO JOBS GET CREATED. Jobs get moved around from the private sector to the public sector. But there's no net job creation. The word "net" in the previous phrase is really redundant. Job creation really is about net jobs not gross jobs.
In 1936 there were many more unskilled labor jobs available than will be now.


Best paragraph I read today 

The most important thing in the bank rescue plan should be cleaning up their balance sheets to the point where even in a worst-case scenario we don�t need to worry about bank solvency (at least for those banks that are left standing by the rescue). If the government announced, �we will buy any assets you want to sell, at their current book values,� this would be a massive subsidy worth hundreds of billions of dollars (and requiring trillions of dollars in initial outlays), but it would at least restore confidence in the banks. If the government announced, �we are taking over Citigroup, Bank of America, and JPMorgan because they are insolvent, and we will write down their questionable assets to nothing, recapitalize them, and later reprivatize them,� this would also restore confidence, although it would unleash a flood of litigation and political attacks against the government for engaging in �socialism.� But if instead you try to split the difference, avoid too much government involvement, and pretend you are not subsidizing the banks, you end up coming up with these too-clever-by-half subsidies that you are trying to hide from Congress and the public, and no one can be confident that they will work.
James Kwak, this morning while awaiting the Geithner Plan. RTWT. I think Jim Hamilton has this right: If everyone on Wall Street loves this plan, it's probably a bad plan.

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Monday, February 09, 2009

What does one say? What does one do? 

Click to enlarge. This was distributed this morning as an announcement to our campus. Your suggestions for how to respond are invited in comments. I support campus free speech. I also think the comparison drawn is outrageous and disgusting. Beyond saying so, what does one say or do?

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Why I never watch rock concerts 

...older artists are more likely to price discriminate than their younger peers. Older artists perform in front of more diverse audiences. Young artists, singing to young crowds, acquire a fan base that then follows them throughout their career. Over time, the artist�s audience grows wealthier, and their variability in earnings also increases. In addition, young artists generally do not appeal to older generations, while older artists can appeal to young and old alike. Older artists are more likely to play for a heterogeneous audience and take advantage of this fact by offering more seating categories.
Since you are more able to price discriminate in a larger arena, older acts play the bigger venues. It is my preference to see bands in small (<1000 seat; I am very fond of the Fine Line in Minneapolis or the Paramount here in St. Cloud, for example) places for which I would pay a premium price, but the small arena is going to be all one price, so I won't see them there. There's a period, if you catch them early enough, where you get the cozier venue, but being over 50, I don't hear those new bands I like early enough.

I'm interested: Do my readers like larger venues? If your favorite band is in town, are you deterred by a place that is larger? Bad acoustics? If I can't hear Coldplay well because they're in that crappy cavern called the Target Center, I don't go. Being closer doesn't help the sound, just the sight, and that's not what I'm there for. How about you?

Exit thought: Your opinion on outdoor venues? The Minnesota Zoo has a nice summer concert series where I last saw Susan Tedeschi and the Blind Boys of Alabama. It was exquisite.

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Government investment vs. government consumption 

Angus has this quite right, in both praise and damnation of Paul Krugman.
It seems to me there are three major components to the bill: Shoveling dough to Congressional Democrat's pals, implementing Obama's rebuild America vision, and the stimulus.

Now all these can be seen as interlinked; as Obama pointed out stimulus = spending, but philosophically I think they are different.

#1 is business as usual and probably would have increased anyway just given the new political power alignment. It's just pretty convenient for the Dems to lump it into a "save the world" bill and be done with it. Plus once it's in the budget, it's the new baseline. #2 should be done carefully and slowly on a cost benefit basis, not on a which is ready to go sooner basis. The rush will cause a lot of money to be wasted. And even shovel ready projects take a fair amount of time to complete. #3 should be done in a serious way. Tax rate cuts, not rebates. No further subsidies for housing, in the short term the best thing is for the Government to buy stuff they can take immediate delivery of (and possibly even somehow use).

...Finally, I think it's a tactical mistake by the Republicans to insist on cuts/modifications to the bill. If it works, they aren't going to get any credit at all. If it doesn't they could well get blamed for having been too stingy.
Angus does not really want a bill, just that if you're doing it, do it right. I would differ slightly from Angus in that I prefer to see more government investment to government consumption. Here's an article about the difference, below is a graph of the two at the federal level.Source. Investment should provide some return. A big piece of government investment is in defense goods; based on this information from the House bill, there is precious little stimulus from defense.


LOL sentence of the day 

As I once learned from Professor Larry Summers, one "cause of long-term unemployment is unionization."
Greg Mankiw, observing an executive order by Summers' boss that insures fewer government projects for your tax dollar. How many fewer jobs? Summers wrote:
Between 1970 and 1985, for example, a state with a 20 percent unionization rate, approximately the average for the fifty states and the District of Columbia, experienced an unemployment rate that was 1.2 percentage points higher than that of a hypothetical state that had no unions. To put this in perspective, 1.2 percentage points is about 60 percent of the increase in normal unemployment between 1970 and 1985.
Is this part of the difference between "the perfect and the absolutely necessary"?

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Understanding 'shovel-ready' 

Among the many things wrong with this stimulus bill, one that seems to pass attention of most is the meaning of the word "shovel-ready". The local paper discusses which projects would be funded.

Engineers in Stearns, Benton and Sherburne counties say federal cash would help them tackle overdue road resurfacing and free up future funds for other long-term projects.

�We�re trying for all the free money we can get,� Jodi Teich, assistant Stearns County engineer, told the county board last week.

Since word broke that an economic stimulus bill from Washington might include substantial funds for transportation, county engineers started looking at their road and bridge plans to see which projects might qualify.

The ones they chose are mainly road resurfacing or bridge reconstruction projects that don�t involve lengthy environmental reviews or right of way purchases.

�We tried to target jobs that were fairly straightforward and simple,� Benton County Engineer Bob Kozel said.

Listing only shovel-ready projects, regardless of whether or not those are real priorities for an area, is understandable. It is, to the counties and municipalities, free money. If the marginal cost of a project is zero, you offer to do any project at all with positive benefits to at least one group regardless of the net benefits. (One of my first lessons in the principles course: Costs are always costs to someone. I use the cost of a baseball to illustrate. It's the cost of the act of acquiring a baseball that's relevant: buy it, catch it at a game, steal it, etc.) So people write lists critical of certain spending programs like the St. Cloud skateboard park proposal, without realizing that there was no prioritization of a list.
�We were asked to submit a list of every possible project we have that could be ready to go in 90 days or less,� [St. Cloud Mayor Dave] Kleis said. �We didn�t prioritize the list. If we had, those items would have been on the bottom.�
The 90-day criterion is a stipulation in the House bill that was passed as a condition for gaining access to the $90 billion meant for infrastructure projects. An article in Popular Mechanics last week talks about the inefficiency of the 'shovel-ready' criterion that mayors and county commissioners were compelled to apply.
The programs that would meet the bill�s 90-day restriction are, for the most part, an unappealing mix of projects that were either shelved after being fully designed and engineered, and have since become outmoded or irrelevant, or projects with limited scope and ambition. No one�s building a smart electric grid or revamping a water system on 90 days notice. The best example of a shovel-ready project, and what engineers believe could become the biggest recipient of the transportation-related portion of the bill�s funding, is road resurfacing�important maintenance work, but not a meaningful way to rein in a national infrastructure crisis. �In developing countries, there are roads that are so bad, they create congestion, because drivers are constantly forced to slow down,� says David Levinson, an associate professor in the University of Minnesota�s civil engineering department. �That�s not the case here. If the road�s a little bit rougher, drivers will feel it, but that�s not going to cause you to go any slower. So the economic benefit of those projects is pretty low.�

That might be acceptable to people focused purely on fostering rapid job growth�but, ironically, such stimulus spending could fall short on that measure, as well. �In the 1930s, when you were literally building with shovels, that might have made sense. That was largely unskilled labor. Today, it�s blue collar, but it�s not unskilled,� Levinson says. �The guy brushing the asphalt back and forth is unskilled, but the guy operating the steamroller isn�t. And there�s an assumption out there that construction workers are interchangeable between residential and highway projects. But a carpenter isn�t a whole lot of help in building a road.�
The only way a stimulus bill "frees up future funds" is if the project that it finances is something that would have been done anyway, i.e., if it meets the cost-benefit criterion, and that there is another project that would meet that criterion as well but for which you face a financing constraint. The skateboard park, according to Kleis, does not and so it is not going to be funded at any rate. That is sound public policy. Making timing more important than net benefits is not.

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Friday, February 06, 2009

Quotes of the day 

But Obama was only getting warmed up. His major howler was this:
So then you get the argument, well, this is not a stimulus bill, this is a spending bill. What do you think a stimulus is? (Laughter and applause.) That's the whole point. No, seriously. (Laughter.) That's the point.
Under this "logic," any bill that contains spending should be enacted because, by definition, it provides "stimulus." It doesn't matter how much stimulus is provided or when the stimulus will occur. This is quite possibly the most irresponsible position ever taken by a president on an economic issue.
I know telling the blogosphere to read Powerline is like telling a fish to swim. But read anyway. I heard this quote while on KNSI this morning and I am very glad my mic was off.

Meanwhile, this howler:
Thirty-six out of 41 Republican Senators voted for the proposed DeMint amendment to the stimulus bill � a massive package of permanent tax cuts that would create a huge hole in the budget, while doing very little to help the economy.
Yoo-hoo, Mr. Nobel Prize Guy?
CBO and JCT estimated that the version of H.R. 1 that was passed by the House of Representatives would increase deficits by $526 billion over the 2009-2010 period and by a total of $820 billion over the 2009-2019 period.
Source. While quite possibly not creating enough growth to pay for itself.

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Temporary taxes 

Steve Perry provides a useful set of notes on where "revenue enhancement" might come from for the Minnesota budget. In the list he includes an observation I had been meaning to make on a surcharge:
A temporary across-the-board income tax surcharge: This has been done before. Back in the early 1980s, then-Gov. Al Quie, a Republican, imposed a 10 percent surcharge on all income brackets. I've been surprised to see how many Democrats like this idea--in some cases preferring it to more progressive upper-bracket hikes. It's not clear why; maybe it's because there's no progressivity in the proposal, and Democrats have learned to fear any proposal that posits higher rates for the rich. In any case, the going estimate on additional revenues to be raised with a 10 percent surcharge is $1.5 billion for the biennium.
Temporary tax hikes are usually less distortionary than permanent ones. Rich folks don't move south to duck a one- or two-year increase in tax rates. I know a few people who were around when Gov. Quie agreed to the surcharge (Lori Sturdevant wrote about it last September) and their take on the current situation is that it feels like it was the right thing to do then and not as bad an idea as many now. (I wonder how Mitch Pearlstein would view it?) Of course one should fear that the other experience with "temporary" tax increases: In 1971 the sales tax was "temporarily" raised to 4%; it never came down. (It's worth viewing revenue commissioner Dan Salomone's presentation to get a longer perspective.)

On the other hand, in order for there to be no distortion we would have to believe there were lots of savings laying around that could pay higher tax bills, that it would not eat into any incipient recovery in economic activity in 2010. But the savings now is an attempt to rebuild busted portfolios, and taxation of savings at this time emisserates the middle class. It would be far better to cut spending. But if you are going to tax, recognize that Minnesota's tax system is highly cyclical and that recessions are temporary. Temporary measures should as a matter of principle be preferred.

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Mrs. Scholar writes 

Mrs. S writes today about the use of tax dollars to support a state university enterprise of operating housing off-campus. I've talked to a couple of local developers/landlords, and they are skeptical of government involvement in the student rental market. If we need more student housing, the university could build a new dorm (been many years since the last one was built.) Can university housing help redevelop a public street that has, to put it mildly, gotten a bit long in the tooth?

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Making the poor pay their own SCHIP 

I got a very interesting email from the American Cancer Society last night, celebrating the passing of the SCHIP bill and, to fund it, a $1 per pack increase in cigarette taxes. "The increase will prevent more than 900,000 smoking-related deaths, deter nearly 1.9 million children from smoking, and encourage 1.4 million adults to quit," says the email from CEO Dr. John Seffrin.

The Tax Foundation points out, however, that of all the ways to fund SCHIP, the cigarette tax is the most regressive. If SCHIP was paid out of individual income tax increases, the average family in the bottom 20% of the income distribution would pay $7; the tobacco tax would collect $249 on average from the same family.

As to discouraging youth smoking, the Tax Foundation points out that many kids only smoke a few cigarettes a day because of the cost; their demand for cigarettes tends to be inelastic so that the tax will not be a large factor in deterring experimentation. And Viscusi and Hakes [2008] find that higher taxes do not operate on the decision of whether or not to smoke; higher taxes only lead to a decision to consume fewer cigarettes by people who already smoke.

So an ineffective tax from the ACS' view is celebrated while imposing most of its costs on the poor. Heckuva job, Seffrin! If you really want to stop smoking, prohibit cigarettes. But since government is a business partner of Big Tobacco, I'm not holding my breath.

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Thursday, February 05, 2009

Define "more or less" 

Josh Marshall
The other key into the current debate is that the Republican position is ominously similar to their position on global warming or, for that matter, evolution. The discussion of what to do on the Democratic side tracks more or less with textbook macroeconomics, while Republican argument track either with tax cut monomania or rhetorical claptrap intended to confuse. It's true that macro-economics doesn't make controlled experiments possible. And economists can't speak to these issues with certainty. But in most areas of our lives, when faced with dire potential consequences, we put our stock with scientific or professional consensus where it exists, as it does here. Only in cases where it goes against Republican political interests or economic interests of money-backers do we prefer the schemes of yahoos and cranks to people who study the stuff for a living. (emphasis added)
John Maynard Keynes:
The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back.
Worth noting that the academic scribbler Marshall cites is our loquacious Nobel laureate. I wonder how many macro textbooks he reads? Abel and Bernanke and Croushore:
As discussed earlier in connection with fiscal policy ... attempts to stabilize the economy run into some technical problems. First, because the ability to measure and analyze the economy is imperfect, gauging how far the economy is from full employment at any particular time is difficult. Second, the amount that output will increase in response to a monetary or fiscal expansion isn't known exactly. These uncertainties make assessing how much of a monetary or fiscal change is needed to restore full employment difficult. Finally, even knowing the size of the policy change needed still wouldn't provide enough information. Because macroeconomic policies take time to implement and more time to affect the economy, their optimal use requires knowledge of where the economy will be six months or a year from now. But such knowledge is, at best, very imprecise.

Because of these problems, aggregate demand management has been likened to trying to hit a moving target in a heavy fog. These problems haven't persuaded most Keynesians to abandon stabilization policy...
Hmmm. What about Mankiw?
In this chapter we have examined whether policy should take an active or passive role in responding to economic fluctuations and whether policy should be conducted by rule or by discretion. There are many arguments on both sides of these questions. Perhaps the only clear conclusion is that there is no simple and compelling case for any particular view of macroeconomic policy.
I can find you a few more if you would like to wait for me to type the others in. I'll note that's from the edition published in 2000, before he became head of CEA for Bush.

This "tracks more or less with textbook macroeconomics" is that "everybody knows" dodge that reminds me of a famous list (I recall it being Stigler's but I can't remember where I last saw it) of economics conference discussant remarks where you need a translator to know what the fellow really means. "Everybody knows" translates to "I'm going to say this true and it's up to you to prove me wrong". Well sorry, Josh, but it is.


A Real Summary of the Dems Pork Fest 

Jeff Jarvis: �We are bailing out the past. Instead, we must bail out the future.� We could start by not saddling the future with trillions more in debt for bailing out the past . . .

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One bad bank model 

One of the places I worked as an adviser was in Indonesia in 2000. My function there was to evaluate the solvency of the government. What called it into question was the issuance of a huge amount of debt to bail out the banking system there following the collapse of the rupiah in 1998. As we hear more discussion of the Obama administration creating a 'bad bank' for holding "troubled assets", I'd like to give a couple of thoughts about the Indonesian experience.

The plan adopted in March 1999 came after a review of all banks. About half were found to be sound. For the remainder, 38 (a quarter of all banks, but not nearly so much in deposits) were closed and deposits were transferred to other banks. The last batch were taken over and operated by IBRA, which eventually issued 650 trillion rupiah in bonds to swap for banks' bad assets. IBRA bonds were obligations of the government. The question was whether or not they would be paid off by the government. Answering that question meant I had to do two things -- assess how much of the bond issue would be covered by sales of the assets IBRA had received in return for the bonds. (The project was fun because we had to assess the present value of the stream of royalties Indonesia received from the oil fields.)

IBRA eventually got between 20 and 25 cents on the dollar. Five years after its creation, the assessment of IBRA was not very positive:

Political meddling, periodic inertia and the sheer scale of its task have kept IBRA in business long after other nations affected by the Asian crisis declared victory over their own banking debacles. The prolonged process stunted Indonesia's economic recovery and alienated investors.

In retrospect, many critics say, the agency was, in part, hamstrung by its mandate to dismantle the empires of the friends and family of former President Suharto who are blamed by many for the banking debacle.Once a band of idealistic financial reformers, the agency's staff slowly surrendered its battle of attrition with the country's richest, most powerful people, they say.

''They've reached a modus vivendi with the ruling class,'' said James Redway, a lawyer in the Singapore office of Latham & Watkins who has represented both borrowers and creditors in Indonesia.

The problem was that the political solution imposed by reformers was to punish Suharto's cronies which, while certainly understandable given his unfortunate and corrupt reign, hamstrung the efforts to resell the assets.
IBRA was saddled with two strictures that many bankers now say crippled it: first, assets could not be sold back to their former owners, and, second, all but the tiniest borrowers were required to pay back 100 percent of the principal on their debts. To help IBRA squeeze Suharto's cronies, the agency was given authority to seize assets, by force if necessary, without having to go through Indonesia's corrupt courts.
Poor infrastructure really harmed the process, something less likely to happen here. Collateral laws were not very strong, and debtors could simply wait out IBRA's collection efforts until the latter tired and moved on to something else. Unable to deal with the people most knowledgeable about the loans, IBRA found itself with a very broad variety of assets and ill-informed investors who were wary of paying more than a few cents on the dollar. Bank deposits at these banks were guaranteed for six and a half years.

In the end, Indonesia paid over half of a year's GDP for its bank rescue, according to this IMF database. A full third of banks were closed. Much of the money spent went to recapitalization of the banks that were not closed; those owners were able to stay in business. And while the economy was moving better in 2003 than in 1998, much of that was tied to the reviving fortunes of its oil fields. And the Indonesian system is still plagued by corruption even after the attempt to remove Suharto's influence.

What does this say about the current Obama plans for a bad bank? Yves Smith has been very critical, and I'd say rightly so. Indonesia in fact did apply triage (grading banks A, B, and C, and then allowing all the C's and the worst of the B's to cease to exist), and it killed off the majority of the banks that got lumped into IBRA. And even then it had trouble because its political solution meant limiting the number of potential buyers and its legal structure inhibited bankruptcies. A clean slate, with the dud banks out of the picture, seems vital to make the bad bank model work.

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Cost benefit analysis of stimulus 

Arnold Kling points to CBO estimates of the Senate version of the stimulus package, which is being debated today. A couple of points jump out at me. First, much of the expected improvement in GDP if one passes this bill is relying on there being a lot of excess supply right now. The low and high estimates for GDP growth this year if you pass the bill are 1.4% more growth to 4.1% more growth. Assuming a one percent increase in employment (technically that should be hours worked, but let's assume we don't use each worker more intensely here) generates a 0.7% increase in output, as most estimates would use, that says the contribution of capital and productivity should be between 1% and 2.9%. Given the estimates of labor productivity are thought to be around 1.5%-2%, that seems a little optimistice. Those ratios fall for 2010. So there must be some catch-up effect being estimated here. Maybe that's right.

Suppose we take, however, the cost estimates and the estimates of additional production to be created. The latter can be measured by taking CBO's guess of the closing of the GDP gap (in the letter to Sen. Gregg yesterday) and estimating them out through 2011. Compare it to the increase in the budget deficit, and you should have some cost and benefit. I have to deflate the deficit costs, so I take the CBO's forecast for GDP inflation and BEA's current 2008 estimate.

If CBO's high estimate was right, your trillion dollar investment would generate an increase in GDP over the next three years of about $350 billion, or 2.7% of one year's potential GDP. In per capita terms, the most optimistic estimate generates less than $1200 additional income for each American. (I could, I guess, do a more careful estimate of net present value and make this a little more elegant but I'm not trying to be that precise; I note that most of the benefits are in calendar year 2009, which is the point of the Senate version.) But if the low estimates are correct, there is a net cost of about the same magnitude. On net, we don't know from CBO's estimates if this stimulus is a net gain or loss to the economy. Given Kling's sensible comment on protecting the creditworthiness of the U.S. government, it seems like we're gambling a lot on a very dubious proposition.

This file contains the data and estimate.


Wednesday, February 04, 2009

Leftist Feminists, AWOL Again 

This report from an Australian newspaper is one of the most blatant examples of those who twist a belief system into a very, very sick and destructive force against its own society. Many in the west daily claim all religions are the same, all cultures are equal, etc. Meanwhile in another part of the world, one woman, claiming to be the "mother of the believers" organized rapes of Iraqi women. Rape in the Islamic world is more often than not blamed on the woman. Then she is made to feel so shamed in many of those societies that men, using the excuse of "honor," are permitted to murder them (including daughters, wives, sisters, etc.)

This woman not only recruited the unsuspecting women and arranged for their rapes, she then "mentally prepared them for martyrdom, turned them over to terrorists who supplied the explosives, then she took them to their target spot."

For those of you who insist that all cultures are equal, it's time to think again. Whether or not "mother" devised this scheme, she executed it and those who trained or brainwashed her are horrible examples of humanity gone very wrong. More here. Perhaps "martyrdom" isn't all it's cracked up to be. The horrific practice of intentionally raping women in order to get more "martyrs" (aka murderers) reveals once again the abysmal depths to which our enemy will sink.

If this had involved a right-wing paramilitary group from Idaho, the leftist/Democrat feminists would have been all over this. As it is, they, along with the mainstream media, are AWOL.


More Reasons to Call Our Senators 

The stimulus aka Democrat pork fest bill that President Obama wants so desperately to pass (so he can blame Republicans if anything goes wrong), has more garbage in it than anyone knows. This is our money that they (the Dems and a few Reps) want to give away to people who support the Democrats. A few facts:

Cost of legislation: $825,000,000,000. Why? Unemployment is bad, or so the Dems and media say but in 1993 the unemployment was about the same as today (7%) and President Clinton proposed *only* $16,000,000,000 for a stimulus.

This current attempt at robbing our pocketbooks can be looked at this way: President Reagan said the best way to understand $1,000,000,000,000 (1 trillion) expenditure is this:
A crisp, new stack of $1000 bills, 4 inches high equals $1,000,000 (1 million).

To get to the $1,000,000,000,000 of the Dems, the stack would measure just over 63 miles.

In $20 bills, $1,000,000,000,000, the stack would be 3150 miles high, about the distance between DC and Trujillo, Peru.
Only 3% of the bill is for road and highway spending.

The bill will cost each and every household $6700 in additional debt paid for by our kids and grandkids. It could give every man, woman and child $2700. Another way to view it, the supposed number of jobs that this legislation would create is 3,000,000 or $275,000 per job. Yet average household income is $50,000. Something is just wrong.

"A government big enough to give you everything you want, is big enough to take away everything you have." Thomas Jefferson.

Interest rates on US Treasury bills are increasing (yield on 10 year treasury bills has gone from 2.23% on 1/15 to 2.95% today - big swing)and this graph shows that our current situation is not as bad as the Dems and their microphone in the media would have us believe.

Call the Congressional switchboard, (202) 224-3121) ask for your senator and tell them, "NO, period." We don't need this bill, period.

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Senator Coleman Conference Call 

This morning I participated in a conference call with Senator Norm Coleman and attorney, Ben Ginsburg. The call has been covered here and here but I would also like to make a few observations.

The current Al Franken lead may very well be artificial. Why? It includes the double counted ballots. The Franken team has ignored the canvassing board statements that there were inconsistent standards applied to absentee ballots and because of this, the election case was and is a legitimately contested case. The ballots covered by the canvassing board were predominantly from strong DFL areas. By reviewing the additional 4800 absentee ballots, the universe of ballots that should have been reviewed is increased. We on the conference call, do not know where these ballots come from, nor do we know their votes. However, it seems that it is entirely possible that with a more consistent review of absentee ballots, the election result will be legitimate.

The Minnesota Court is quite aware of the equal protection issues involved in this election.

Other topics: one asked if Al Franken's tax problems had been solved and if the Coleman team was going to pursue it. As Senator Coleman stated (I paraphrase), "That is the media's job, not mind." Interesting that the media has no interest in pursuing the Franken tax problems. Then again, so many Democrats have had problems with taxes, perhaps it's just too much work to cover any more. Just ask yourself, though, if a Republican had not paid taxes in 17 or so states, would the press have been quiet? I don't think so.

Wagner's Law 

According to Wikipedia: "Wagner's law predicts that the development of an industrial economy will be accompanied by an increased share of public expenditure in gross national product."
From Captain Capitalism, who notes:
Imagine, it was in 1900 that the US government only taxed us at a 2.5% rate. Then, after each successive war, the government has found it necessary to boost its take of economy to today, where including Obama's bailout, I estimate the federal government ALONE will take 30% of GDP in 2009.
I have some question about how he gets to 30%. Figuring GDP of about $15 trillion means we need to find $4.5T of spending; currently spending is forecasted at $3.5 trillion. The stimulus bill that passed the House would add only $108 billion to that in FY 2009 (the Senate version speeds that up to $132b.) So we can quibble about whether it's 25% or 30% or whatever. But Aaron's point is nevertheless correct: After each war, the ratio of government spending to GDP doesn't typically recede to the old level.

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I learn a new phrase 

I was reading on Bill Easterly's new blog about Refugee Run. It reminds me of a long-ago time here at SCSU when various multicultural student groups would take a day to turn the student union building into apartheid South Africa. White students would be asked to show their passes (student ID) and perhaps questioned. I believe one year they tried to separate where the white students could eat lunch. There was then to be discussion groups to take advantage of this consciousness-raising exercise. I had always wondered what the students of color who acted as the guards that day; did they learn Acton's Law, for example?

Refugee Run is basically that, except replace white students with Davos attendees.

But that wasn't the most important thing I got. Easterly writes:
Alex de Waal in his equally great book Famine Crimes (and continuing writings since) writes about �disaster pornography.� He gives an example of a Western television producer in Somalia in 1992-93 who said to a local Somali doctor: �pick the children who are most severely malnourished� and bring them to be photographed.
"Disaster pornography", as Sam Kinison famously lampooned, continues to this day. At the Super Bowl party I attended Sunday someone wondered where Sally Struthers is. (It was a guy, so I let his ignorance of Gilmore Girls pass unremarked. Until now.) We all take advantage of it -- there are conservative talk show hosts that use the image of starving Haitians to raise money to send money as well as the more liberal Sachs-Stiglitz types who think the U.S. aid budget is too stingy.

Disaster pornography is what killed the Bush presidency in New Orleans. What will be the DP image that weighs down the Obama popularity rating? You may think the MSM would never do such a thing, but what bleeds, leads, and the Obama presidency will be dull soon.
In the time since his inauguration, Mr. Obama has been on every screen in the country, TV and computer, every day. He is never not on the screen. I know what his people are thinking: Put his image on the age. Imprint the era with his face. But it's already reaching saturation point. When the office is omnipresent, it is demystified. Constant exposure deflates the presidency, subtly robbing it of power and making it more common.
Before long, some cameraman will be looking for the doctor in some faraway place to hold up the sickliest child to the lens.

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Stinky taxes 

You have to admit, when the StarTribune refers to the state corporate income tax as "a stinker", it's a good day for the people who support lower taxes.
[W]ould the corporate tax cut stimulate the economy in the way Pawlenty predicts? Or would it simply drain away revenues that already are shrinking?

Economists and business leaders are mixed on whether lowered business taxes would prove a jump-starter. But they are virtually unanimous in their assessment that the corporate income tax is, to put it bluntly, a stinker.

The discussion though always turns to how the government makes up the money:

[F]or all its problems, the corporate business tax has been a boon to state coffers. The tax yielded only $588 million five years ago and now hauls in $1.02 billion a year.

"Given our economic situation, if we're going to get rid of that, we have to think of what replaces it," said Senate Taxes Committee Chairman Tom Bakk, DFL-Cook. "Given where this state is right now, we can't afford to turn our backs on a billion dollars of revenue unless it's offset somewhere else."
But the forecast in November was not for this level of income. Only $597 million is expected in FY 2010 (to start July 1 2009) and $809 million in FY 2011, and barely rising above $900 million by FY 2013. Compared to $5 billion or more in deficits for the next biennium and the one thereafter (we'd expect), this is not that much.

Tax competition between the states (illustrated by this chart from the STrib) is costing Minnesota jobs and corporate tax revenues. Brent Bartsch writes that North Dakota is already considering cuts in the corporate rate. This kind of tax competition is more known in Europe (thus calls for "tax harmonization", which is cartel behavior by governments) but also can happen between states. �When other states are scrambling to hold down deficits, however, you can bet on nobody else following your lead on corporate taxes, at least for awhile. �That would make Pawlenty's play on taxes for small businesses and corporations potentially a winner.

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Tuesday, February 03, 2009

Media alert: KNSI 

I am on the KNSI Morning Show Wednesday through Friday this week, 6-8am CT. �Hope you listen in! �Streaming is available from the link, but alas no podcast.

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12 zeroes 

No, this isn't about the list of lobbyists in the Obama Administration. It's the new currency reform in Zimbabwe.
In an attempt to try to tame hyperinflation and avert total economic collapse Zimbabwe's central bank revalued its dollar again on Monday, lopping another 12 zeros off its battered currency.

Reserve Bank of Zimbabwe Governor Gideon Gono announced the new currency moves on Monday, adding that some foreign exchange controls will be relaxed and gold producers now can sell bullion directly and not to the central bank as in the past.
Steve Hanke estimated last last year that the annual inflation rate had reached 6.5x10108 percent through November last year. The government has given up trying to force shopkeepers to keep the Zim$ as the sole medium of exchange. According to CNN, more than Zim$300 trillion is needed to buy one U.S. dollar.

This is the third renomination of the Zim$; ten zeroes were stripped off the currency last August. Will their inflation reach the Hunagarian pengo for the record?

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On the first day of leftism, my true love gave to me... 

...the Sixteenth Amendment.

(with apologies to Mitch.)


"I have no basis for this opinion, but it's the other side that practices faith-based economics" 

Consumers are pulling back because they�ve realized that they�re too far in debt. The economy is shrinking in large part because consumers are pulling back. And the result, almost surely, is to leave household balance sheets worse than ever. I can�t do this accurately until the Federal Reserve�s flow of funds data have been updated, but almost without question the ratio of household debt to personal income has been rising, not falling, as consumers try to save more.
I guess winning a Nobel means never having to wait for data. Or maybe it's the water. (Emphasis mine)


Which ball is smallest? 

Via Suitably Flip, an interesting graphic puts the current stimulus debate in one perspective:Now to be fair, I've often criticized use of real dollars as avoiding the scale problem While the comparison between the stimulus bill* and the Iraq War is apt, the economy was much smaller in the earlier periods. So for example, the amount spent on the New Deal compares to an economy that was $865 billion in real GDP (in 2000 dollars). That is much more than the stimulus package under consideration. On the other hand this bill is only the first of several bills according to President Obama, where I would guess the New Deal spending was much more.

Likewise, the purchase of the Louisiana Territory is much larger as a share of GDP. But more to the point, the purchase of Louisiana from France is a different kind of government spending than spending on the New Deal or spending on this stimulus package. Russ Roberts yesterday:

Consider two different government programs for stimulating the economy. The first program borrows $819 billion and hires and pays groups of workers $819 billion to dig a bunch of holes and then fill them in. The second program spends $819 billion to repair a bunch of bridges on the verge of collapse, repair a bunch of sewers about to go bad, and revolutionize the energy and health sectors.

I think most economists would argue that the first program would be a bad use of federal money at a time when we're already running a growing budget deficit. Yes, it would put money in the hands of workers but the effect on the non-hole-digging part of the economy would be insufficient to justify increasing the future taxes necessary to repay the borrowing that financed the program. Most economists would also agree that the second program would be a bargain that would yield benefits well beyond the money put in the hands of those executing the project.

I think the disagreement among economists is really over which of these two scenarios is closest to reality. The federal budget is about $3 trillion. Is the next $500 billion or so money well spent or money squandered?

Looking at the graphic again, I see interest payments -- if the money is well-invested in infrastructure I could justify the spending of interest to finance it, just as I would not worry about the debt I take on and interest I pay on my HELOC to redo my kitchen to replace old appliances and cabinetry. A HELOC is neither good nor bad save the investment done with the HELOC makes it so; using a HELOC to gamble in Vegas is bad for reasons other than the nature of the debt instrument. How much is given to Wall Street executives isn't good or bad unless you know what you got for the money; no matter the size of the bonus ball, you got little for your investment so it was ex post a bad investment. But ex post isn't the right metric; ex ante is.

Likewise, it's what gets bought with the infrastructure portion of the stimulus package that matters. It's what gets done with the state aid and "human capital" portion. What did you acquire? What could you have gotten instead? The Republicans in the Senate, through their leader Mitch McConnell, want to use money instead to provide new mortgages and mortgage refinancing. Is that a good use of the money, to try to stimulate demand for housing? How else could the money be used instead? These questions are getting buried in focusing on the size of the stimulus bill.

*The amount for the stimulus bill, I should point out, includes interest payments, which I cannot confirm is included so for the other balls on that graphic.


Monday, February 02, 2009

Second best might still be good, just not best 

I was going to comment on the thread accompanying Janet's post about road emergencies but decided it was worth its own post. (I get to do that: it's my blog.)

Conservative opposition to the extra-constitutional creep of government into everyday lives does not mean that government can never work well in our view. It might. What we do not know is how well roadside assistance like that Janet received would be provided by the private sector. We do have AAA and other roadside assistance programs. One could choose to save money and have no assistance; in a private-road world AAA or other roadside assistance programs may offer an expanded range of services. We currently organize society to have public provision of roads and of emergency services, and we currently choose to have public financing through taxation for those services. That they served Janet well that day last week does not make them the most efficient. We do not know, nor does anyone commenting on Janet's post know, how those services would have been provided if 911 and MnDOT did not exist. Maybe it would work well, and maybe it would not. The point is that just because MnDOT in some case does its job well does not mean some other organizational structure might not provide it better and cheaper.

We already have many states contracting out for toll roads. Often these toll road contracts include contracting for maintenance services. For a road that had upgraded roadside assistance even better than MnDOT's perhaps people would be willing to pay a higher fee.

UPDATE (10 pm): �During�24�commercials I read two emails to this post. �From Janet:

In both instances, I used AAA for towing. The first instance, when I was waiting for AAA, MNDOT stopped to check. Nice that they did but not necessary. In the 2nd instance, I was concerned my car would just coast to a stop in a lane with lots of speeding traffic because that section of road has no shoulders. There would be no way for me to get out of my car safely nor would there be any warning for oncoming cars other than my flashers � hence my call to 911. I thought maybe I could get a cop car to get behind me so I wouldn�t be rear-ended and hurt along with people in the car that could not avoid hitting me. Luckily, I found the only 40� of grass and got off the road. At that point, 911 turned me over to a towing company.

My point was that there are times that it�s nice to have government help but that�s not to say a private operation could or could not do better. Personally, I�d prefer most of it private because of accountability. However, there are times when one needs police and my 2nd instance was one where police could have been appropriate.

Overall, just because 2 agencies did their jobs, does not make one a supporter of all government services...
The second from Prof. John Spry of Univ. of St. Thomas:
I am attaching a link to a paper of mine about services on toll roads. ...

The paper was inspired by my 89 Dodge Aries breaking down on the New York Throughway, and calling AAA. AAA was banned from helping stranded AAA members on that road, so that politically connected repair shops could have a monopoly on towing on �their turf� of a stretch of toll road. So I sat in 5 degree weather for 3 hours after calling AAA waiting for the non-AAA government appointed monopoly to arrive.
It does seem that there are functions that can be best served by police such as Janet's second breakdown. (Hopefully her last, too, as Janet will be getting new wheels shortly.) But John's story is instructive -- when you allow government to decide who can serve these functions, rent-seeking too often ensues with taxpayers left without the efficient level of service.

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Podcast of the week 

While I was driving last weekend I had, as usual, my iPod with TownHall podcasts full playing away. The best hour I heard was Hugh Hewitt's interview with Jay Mathews of the Washington Post, whose column is the best writing on education in America. His new book, Work Hard Be Nice is going in the book pile this evening, and likely to get sorted ahead of many other books. The book details the history and success of the Knowledge is Power Program or KIPP. There's one in Minneapolis. As always there's the question of how do you scale this up to many schools (and, I'd argue, how do you adapt it to colleges like mine which are non-selective)? I'm looking at these five pillars and thinking a lot about that last question right now.

I'm thinking of making podcast of the week a regular feature. I probably listen to fifty or so, not all of which I subscribe to (beside Hugh, I listen regularly to Prager and Miller, Tom Keene's excellent economics podcast, and of course Russ Roberts. And Simmons for all the Celtics and Red Sox tawk.) Yes, the headphones are on more than you might think safe. Are you interested in this? What do you listen to?

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In lieu of doing their jobs, or, looking for another Indian 

In Michael Deaver's memoir of Ronald Reagan, Reagan is reported to have told a yarn several times about finding a man at the Bureau of Indian Affairs crying. Reagan asked what was wrong and he replied "My Indian died, that's what's wrong. What the hell am I supposed to do now?"

On the second hour of the Final Word on Saturday, I talked about the DFL's response to Governor Pawlenty's budget proposal from last week. The budget deficit has been known since November, and back then Sen. Larry Pogemiller had some strong words on what they would do:
DFL Senate Majority Leader Larry Pogemiller said finance committees will start from scratch and examine every nook and cranny of current spending. Pogemiller said state government will have to stop doing some things, and he already has a target in mind.
This Senate and House has paid itself over a quarter-million dollars in per diem money when the Legislature was not in session, most of which was in the last six months of 2008. Add to this mileage. Most of the money was spent in the last six months. The number of committees used by the Pogemiller-Kelliher-DFL legislature has grown dramatically. In return for that, and given the imperative of dealing with a budget deficit that is likely to grow from the current estimate of $4.8 billion, don't you think you'd get a budget proposal?

As HAL 9000 would say, "I'm sorry, Dave, I'm afraid I can't do that."

Or maybe we should let Senator Tarryl Clark explain:

The strategy is obvious: The DFL leadership is seeking pressure from tax consumers to force a different solution than the one that requires no tax increases. The law states that the House and Senate must develop budget targets (that's the Senate document for 2007-08; I haven't found the ones for 2009-10 yet.) (UPDATE: The Senate rules are still temporary, here. 30 days from the release of the last Finance update, which I now here is scheduled for March 2.)

But Sen. Clark went looking for new Indians. Our faculty union sends this admonition:
Legislators are planning to hold hearings on the budget around the state, and I will send you times and locations as soon as they are available. It is very important we have a big turnout of higher education constituencies at these hearings to offset the pressures from other constituencies, particularly the advocates of deeper tax cuts.
The House and Senate, who I remind you have spent a quarter million dollars on meetings outside of the Legislature, now set up websites to "solicit input", which is what I thought they were doing with those meetings last fall. Every taxpayer ought to check the data provided by Pat Kessler of WCCO and write their legislator the following letter:
Dear Senator Clark,
I note from Pat Kessler's Reality Check last month that you received $4128 [change to fit] of per diem payments in the interim period outside of the Legislature's normal duties. I note that the legislature has not developed a budget. As a taxpayer and constituent I make the following request: Please document the 43 days [you should change this to be the number above divided by $96 per day for senators, $77 per day for representatives] you received this money and the nature of the business you conducted that day. In particular, please note the days you spent working on closing the state budget deficit. Thank you.
Sign it, and even give them a SASE, since they appear to be short on stamps at the Legislature. If you do send one, please send a copy to me (comments at name of this blog without the www. part) and we'll read it on the air on The Final Word next week. We'll see if they actually worked on cutting spending, raising taxes, or finding new Indians.

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Sunday, February 01, 2009

Government That Governs Least, Governs Best 

Government needs to be limited by law. What has happened too much in the west is we have lost confidence in the importance of the Rule of Law and are morphing our way into servitude.

This very brief video (10 minutes) summarizes types of governments and what happens to the people under those governments when they become lazy, guilt ridden, spoiled, or expect others to take care of them while ignoring the power of the individual. It is so worth watching! Please take the time to view it, then send it to whomever you can.

Regardless of our problems, the US has been a magnet for people from all over the world. Conscious or otherwise, immigrants come here first because of the Rule of Law. But the Rule of Law can be lost if people turn over their individual responsibility to government. In the end, freedom is gone.

We owe it to our kids, grand kids and the world to regroup and take back our country. We were designed on the concept that all men are created equal. This belief will not last if any other form of government replaces the Rule of Law.